Expert view: The Nifty 50 may end the calendar year 2025 with modest gains largely due to soft earnings growth, Trump tariffs and global uncertainties, says Pawan Bharaddia, the co-founder and chief investment officer (CIO) at Equitree Capital. In an interview with Mint, Bharaddia shared his views on the Indian stock market, the impact of Trump tariffs, FIIs selling and investment strategy for the short term. Here are edited excerpts of the interview:
Are we set to end the calendar year with modest gains? What are the key headwinds?
The Nifty 50 is up about 4 per cent year-to-date (YTD) till September 3. Historically, the index has finished in positive territory in 9 out of the last 10 calendar years.
Going by this trend, we believe this year should not be any different, and we should see calendar year 2025 (CY25) also ending positively with modest gains.
That said, we believe certain headwinds persist, which might keep the returns in check. Earnings growth has been subdued on a YTD basis, stuck in single digits, and that remains the most important factor to watch.
On the global side, prolonged Trump-era tariffs continue to create uncertainty, while geopolitical tensions and shifting policies have also kept sentiment somewhat cautious.
If Trump tariffs remain in place for a longer period, how will it impact the Indian stock market?
India’s exports to the US account for just about 2 per cent of GDP, so the impact of prolonged Trump tariffs will not be broad-based across the economy.
The real pressure would be felt in sectors with high US exposure—notably textiles, gems and jewellery, and carpets—where a nearly 50 per cent tariff meaningfully dents competitiveness.
Going by recent trends, where we have seen high tariffs eventually reversed, we believe that such a steep tariff level is not sustainable from a global trade perspective.
We may indeed see some moderation coming about in the short-to-medium term.
We strongly believe that while these tariffs may create pockets of pain in the short term, the overall impact on Indian markets should be contained, with domestic-demand-driven sectors largely remaining insulated.
FPIs have been relentlessly selling Indian stocks. What are the major reasons behind their outflow? When can the trend reverse?
Starting from 2022, we have seen relentless selling by FIIs to the tune of $38 billion.
This reversal largely resulted from increasing interest rates in the US, which oscillated from near 0% to 5%+ from 2022 to 2023.
This steep increase led to reallocation of global assets from equities to bonds as the world moved to a higher risk-free rate of return.
This was further accentuated with an increase in interest rates by the Bank of Japan in 2024.
It’s interesting to note that India saw Yen-denominated investments surging from about $6 billion in early 2023 to over $21 billion by mid-2024.
The rise in interest rates led to a massive sell-off, totalling over $2.5bn in August 2024!
Lastly, a broader “risk-off” mood fueled by prolonged geopolitical issues, Trump-era tariffs, weak earnings growth, and stretched valuations has collectively made Indian equities look expensive relative to peers, continuing the FII sell–off.
After seeing an unprecedented sell-off, we sense that this trend should begin to reverse once the US Fed pivots to cutting rates.
A weaker dollar and narrower yield differentials would restore the appeal of Indian equities, especially as foreign ownership is now at decade lows.
Therefore, even a modest change in sentiment could spark meaningful inflows, with India well-placed to be one of the first beneficiaries when the global tide turns.
What should be our investment strategy for the short term? Should we trim exposure to equities?
In the short term, the market may continue to be volatile as the global geopolitical and trade tariff issues play out.
However, we believe the current market is a stock pickers’ paradise to build a long-term portfolio of strong businesses which have strong earnings visibility and where valuations are reasonable.
For instance, our portfolio trades at a median PE of 16 times FY26 projected PAT and is likely to deliver about 25 per cent growth in the current year.
We are already seeing growth, with a large part of the portfolio delivering a median growth of over 19 per cent in Q1.
In our view, the current market confusion is actually a fantastic opportunity for long-term investors to strengthen their portfolio positions.
Rather than trimming exposure, we think this is the phase to build positions in fundamentally sound companies.
What are the sectors where you see value emerging?
We believe Indian manufacturing and engineering present a multi-decadal opportunity.
Within this space, we see particularly strong potential in railways, defence, auto ancillaries, and agri equipment.
The tailwinds here are supported by both government policy push and improving private capex trends.
The recent IIP print showed growth of around 3.5 per cent, compared to 1.5 per cent in the previous month, which validates the underlying momentum in these segments.
This is an area where India has both structural demand and policy support, creating a strong runway for growth. In consumption, we are beginning to see early green shoots of recovery.
With GDP growth holding steady, our sense is that consumption will inevitably follow, especially in discretionary categories.
This trend, though still in its early stages, gives us confidence that consumption will once again emerge as an important market driver.
Do you expect the Fed to cut rates in September? How will it impact the Indian stock market?
Despite all the political pressures, the Fed has so far held back, waiting for inflation to stabilise before making its move. That makes it difficult to anticipate when the first cut will come.
However, the commentary after the last Fed meeting was far more accommodative than before, and our sense is that the cycle will begin sooner rather than later.
As and when it happens, we believe a rate cut will act as a clear trigger for flows coming back into emerging markets, with India being a natural beneficiary.
Lower rates would bring back liquidity and buoyancy into Indian equities.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
