We have closed FY24 with double-digit gains. How do you see markets in FY25?
Amit Goel: We believe that the global bear market in equities will commence in earnest within the next 8-10 weeks, and we expect the Indian markets to have peaked out and begin their downward journey by then. By the end of FY25, we anticipate a decline of 20-25% from current levels.

How should one place themselves in the small & midcap space in FY25?
Amit Goel: While the small and mid-cap indices have come down from their February peaks, we believe there is still a lot of froth in those segments.

We would advise our investors to be extremely underweight in those segments and have a multi-asset approach in their portfolio whereby they could enjoy the benefits of bull runs/rallies in other asset classes while the equity markets are overvalued.

They should increase their weightage in the equities market when a correction has materialized. By following this approach, investors could generate a return of 18-20% on their portfolios while avoiding the risk and downside emanating from the overvalued equity markets.

Any sectors that could turn out to be the dark horse in the next 12 months?
Amit Goel: We anticipate that even defensive sectors in the market, such as FMCG, pharma, and utilities, are so richly valued at this point that they may not be able to provide a great cushion when the bear market starts.Hence, in our opinion, the best approach to investments would be a macro top-down multi-asset approach where we do not necessarily have to look for stocks/sectors that may generate a positive return in a falling equity market, which is an extremely difficult task considering the state of overvaluation across sectors in our market.Election will start in April – are there any sectors that have done well post the event?
Amit Goel: The sectors that have outperformed post the elections have been a function of the nature of the mandate given by the electorate. Usually, a strong mandate in favor of the NDA alliance has been associated with rallies in PSU stocks, PSU banks, and infra sectors.

This time, however, because the sectors are going into elections extremely overvalued, any post-results rally may be extremely transient and difficult to take advantage of.

Hence, unless and until there is a significant correction before the election results, the risks are much higher than the expected returns from the strategy.

Crude oil has been inching higher so far in 2024. Do you the trend as a worry for Indian markets in FY25?
Amit Goel: Crude oil has broadly been in a range for the last year or so, and right now, we are somewhere in the middle of that range, maybe a little closer to the higher end than the lower end.

We don’t see crude oil prices climbing higher from the current levels, and hence they may not be a significant factor in how the equity markets play out in the remainder of CY24.

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?
Amit Goel: We believe that the central banks in the US, Eurozone, and UK are going to start cutting interest rates within the next three months and make 4-5 cuts within the next 12 months.

However, this may not be very bullish for global equities as those interest rate cuts are going to be in response to a slowing world economy. We do not expect any significant interest rate hikes from the Bank of Japan in this environment.

We are clearly of the view that equity markets will have more downside from an evolving recession in the world economy than the upside they would enjoy from dovish central banks.

What is the biggest risk that you see for markets in FY25 that could derail the bull party?
Amit Goel: We believe that the world economy is slowing down, and this slowdown will snowball into a recession within the next 12 months.

We also believe that corporate results will underperform investors’ expectations over the next year. These two factors are powerful enough to trigger a global bear market in equities.

India, being a high-beta market, always tends to decline more in a global bear market, and with the valuations as rich as they are in the Indian context, India’s underperformance may be quite stark this time around.

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