“We do expect FY25 to be a year of consolidation for the markets and that applies to the midcap and small cap segment of the market as well,” says Chandraprakash Padiyar, Senior Fund Manager, Tata Asset Management.

In an interview with ETMarkets, Padiyar said: “We believe the banking sector along with Housing related sectors has better risk-reward in our markets for the foreseeable future,”. Edited excerpts:

We have closed FY24 with double-digit gains. How do you see markets in FY25?
Chandraprakash Padiyar: We do not take views on the market levels, however, we think that FY25 logically should be a year of consolidation for the markets with lower returns than FY24 given the backdrop of global growth slowdown, elections in most world economies including in India, earnings growth being slower than FY24 given the high base, skewness of top 7 stocks in the S&P 500, China real estate weakness leading to muted global commodity price outlook and finally valuations being on the higher side of the range.

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How should one place themselves in the small & midcap space in FY25?
Chandraprakash Padiyar: Valuations in the mid-cap space in general are on the higher side though quality of businesses is better, and we believe the earnings outlook remains steady.

On the other hand, the small-cap universe is very large and there is certainly a much larger scope to do stock picking and reasonable valuations.

Small cap segment of the market, we would advise, that one should not make a general statement given the large universe available to investors to choose from.

However, as mentioned earlier, we do expect FY25 to be a year of consolidation for the markets and that applies to the mid-cap and Small Cap segment of the market as well.Any sectors that could turn out to be the dark horse in the next 12 months?
Chandraprakash Padiyar: We believe the banking sector along with housing related sectors have better risk-to-rewards in our markets for the foreseeable future. Election will start in April – are there any sectors that have done well post the event?
Chandraprakash Padiyar: We do not believe in taking event calls. We at Tata Asset Management focus on the quality of cash flow delivery and growth in earnings along with valuations for companies we invest in. Additionally, we focus on the long term and all our funds tend to have low churn ratios.

Crude oil has been inching higher so far in 2024. Do you the trend as a worry for Indian markets in FY25?
Chandraprakash Padiyar: At this point in time Crude has been pretty range bound between $80-$85 per barrel. We do not see these levels creating any headwinds for the economy.

Any significant spike from current levels can surely have an adverse impact on the CAD and thereby on the exchange rate. FY25 and beyond crude price is certainly one variable to watch out for.

Japan ends a 17-year run of negative interest rates and the US Fed kept rates status-quo – what does the central bank’s rate action tell us about future rate trajectory?
Chandraprakash Padiyar: Japan’s central bank has been running a negative rate environment for a long time even during rate tightening phase by the US Fed leading to large capital outflows from Japan and a sharp yen depreciation against the US $.

Japan recent rate action is probably the first step towards normalisation and we need to monitor this closely going ahead since there can be a large impact on Japanese Yen thereby flowing from the world towards Japan again in a very large manner.

What is the biggest risk that you see for markets in FY25 that could derail the bull party?
Chandraprakash Padiyar: Markets today inherently believe that earnings growth globally might pick up and could remain in healthy double digits for FY25.

The current economic outlook is for a soft landing in the US and may expect some amount of stability in the EU and China regions.

Any adverse economic movement compared to expectations could lead to negative surprise on earnings thereby impacting on the market outlook.

Additionally, there are geopolitical events ongoing, and any escalation could lead to risks emerging for global equity markets.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of the Economic Times)


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