Expert view: VK Vijayakumar, Chief Investment Strategist at Geojit Investments, finds a 7.5 per cent return of Nifty in the first half of calendar year 2025 (H1CY25) good amid elevated valuations and modest earnings growth. In an interview with Mint’s Nishant Kumar, Vijayakumar underscored that an India-US trade deal may boost market sentiment, but a sustained rally in the market needs fundamental support in the form of improving earnings growth. He also shared his views on sectors he is positive about and his expectations from Q1FY26 results. Here are edited excerpts of the interview:
How do you assess the performance of the Indian stock market in H1CY25? Did it meet your expectations?
With a 7.5 per cent gain in the first half, the Nifty 50 has delivered decent returns.
Given the elevated valuations and modest earnings growth outlook, return expectations were low. Therefore, the 7.5 per cent return and the smart recovery from the March lows are good.
It is important to appreciate the fact that equity markets globally are doing well. Some markets have done very well, like Brazil, Germany, and Hong Kong, where the H1 (first half) returns were 15.6 per cent, 19.3 per cent, and 22 per cent, respectively.
What are the key triggers that will drive the market in the second half of the year? Where do you see the Nifty 50 by the end of the year?
The Nifty 50 is presently in a range of 25,200-25,800. If this range is to be broken on the upside, positive triggers are needed. An India-US trade deal can be a positive trigger.
But a sustained rally in the market needs fundamental support in the form of improving earnings growth, which appears some time away.
What sectors could lead the next leg of the rally in the medium term?
Financials – banks, insurance, NBFCs – are likely to remain resilient. IT may stage a comeback if the management commentary is good. Two-wheelers and premium auto segments have the potential to move up.
Domestic consumption themes like telecom, aviation, hotels, and hospitality are on a good wicket, but there is no valuation comfort in these segments.
If the India-US trade deal happens without any tariff hikes on pharmaceutical exports, this sector can stage a comeback.
What do you think about the current growth-inflation trends in India?
Current growth-inflation dynamics are highly favourable. A sharp dip in inflation (2.82 per cent in May) and soft food prices have enabled the MPC to pursue an extra-dovish monetary policy, with a 50 bp cut in the repo rate and a 100 bps cut in CRR in four stages.Â
This, along with the fiscal stimulus provided in the Budget through massive cuts in personal income tax, has provided the perfect setting for the revival of GDP growth to slightly above 6.5 per cent in FY26. However, the challenge is the poor micros (earnings growth) despite the strong macros.
Despite their rich valuations, the mid- and small-cap segments are witnessing significant investor interest. What should be our strategy for these segments?
The main driver of the broader market is the sustained liquidity flows into the segment. Midcap results have been good in Q4 FY25, and this trend is likely to continue.Â
Given the good growth prospects in this segment, the high valuations can be partly justified.Â
However, small caps are excessively valued, and investors should exercise caution in investing further in this segment. The risk is high. Safety is in large caps.
What are your expectations from Q1FY26 earnings? What are the key factors that indicate earnings could be better or worse?
Q1 results will be modest. Banking is likely to report a mild dip in margin, but it will improve in the subsequent quarters. IT results are likely to be tepid, but madcaps can outperform.Â
Two-wheelers, luxury auto segments and tractors are set to report improved numbers. Cement results will be flattish.Â
Domestic consumption themes like telecom, aviation, hotels, and hospitality are expected to report good numbers.
What should be our investment strategy at this juncture? Is it the right time to increase exposure to equities?
Given the elevated valuations, this is not the time to increase the exposure to equity meaningfully. Liquidity-driven rally has serious limitations.Â
However, investors with a long-term horizon can continue to invest systematically.Â
Buying into quality large caps on dips would be a good investment strategy.
Should we expect more rate cuts from the RBI in the current cycle?
The probability of another rate cut this year is low but cannot be ruled out. If growth continues to be tepid and inflation remains low, thanks to a good monsoon, another 25 bp cut in the policy rate is in the realm of possibility.
When do you expect the US Fed to start cutting rates?
The Fed’s next rate cut is likely by the end of 2025 only since tariffs are expected to push inflation higher. Powell is likely to remain in a wait-and-watch mode.
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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.
