Indian stock market: Experts stay optimistic despite Q2 GDP shock, recommend THESE key sectors and stocks to buy | Stock Market News

India’s gross domestic product (GDP) figures for the July-September quarter of the current financial year shocked many. The Q2FY25 GDP growth rate was 5.4 per cent, the lowest in nearly two years.

In the corresponding quarter last year, India’s GDP growth was an impressive 8.1 per cent, while in Q1FY25, the economy grew by 6.7 per cent. Notably, in Q2FY25, GDP growth numbers have declined for the third consecutive quarter.

However, despite the numbers coming below expectations, experts remain optimistic about the Indian economy. Some of them see encouraging signs, such as a revival in private consumption. Experts believe the dip in GDP growth is temporary, and things will start improving by Q4FY25.

“The Q2 FY25 GDP growth came in below expectations, but there are several encouraging signs within the data. Private consumption grew at an impressive 6 per cent, significantly higher than both the overall GDP growth rate and the 2.6 per cent recorded in Q2 FY24. This dispels recent concerns about weakness in private consumption. Government consumption improved from the previous quarter but was lower compared to the same period last year, likely reflecting cautious spending ahead of elections,” Vikas Gupta, CEO and Chief Investment Strategist at OmniScience Capital, observed.

Market ignores GDP shock

The Indian stock market saw some selling pressure in the morning trade, but it recovered smartly, shrugging off concerns over economic growth. Indian stock market benchmarks- the Sensex and the Nifty 50- closed with healthy gains of over half a per cent each on Monday, December 2. The mid and smallcap segments of the BSE jumped up to a per cent, lifting the overall market capitalisation to nearly ₹450 lakh crore.

After India Inc.’s weak Q2 results, the market likely factored in a moderation in GDP growth. This seems to have triggered a fresh wave of buying following a decline in the morning session of trade on Monday.

Experts do not appear worried about the health of the Indian economy. At the current juncture, global cues, including the Fed’s policy decision and President-elect Donald Trump’s moves on tariffs and geopolitical developments, remain the key triggers for the market.

What should Indian investors do?

For experts, every decline in the Indian stock market at this point is a buying opportunity to build long-term positions.

The economic slowdown in the second quarter was primarily due to low government spending due to elections and excess monsoon in some parts of the country. This could change in the second half of the fiscal as government capex is expected to see a strong push after the Maharashtra election outcome. Moreover, rural recovery may also gather steam, while rate cuts by the RBI would improve credit flow in the system.

According to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, a sharp cut in the market can be an opportunity to buy since the domestic institutional investors (DIIs) continue to buy during dips. Pharma, telecom and digital companies are the segments which are not impacted by the slowdown and those can be bought on declines.

Sneha Poddar, VP of Research, Wealth Management at Motilal Oswal Financial Services, underscored that the recent correction in the Indian stock market has cooled off the valuations in large-caps, even as mid- and small-caps trade at expensive multiples. This provides an opportunity to add select bottom-up stocks.

“Nifty-50 is now trading at 19.6 times FY26E EPS, while mid-cap/small-cap indices are trading at 30x/23x one-year forward P/E multiples, off from the Sep’24 highs but still rich versus their own history as well as relative to Nifty-50. Thus, the recent correction and the consequent moderation in valuations provide an opportunity to add select bottom-up ideas. We advise investors to remain overweight towards large caps in their portfolio, with selective exposure towards mid-caps and small caps,” said Poddar.

Atul Parakh, CEO of Bigul, suggests investors should implement strategies like diversifying their portfolios. They might also consider investing in a combination of stocks, bonds, gold, and property.

“Investors have the option to allocate funds in areas like infrastructure, financial services, consumer products, technology, healthcare, and renewable energy, which may offer promising opportunities that correspond with present market trends and future growth prospects based on research underpinned by fundamentals prior to making investments in any sectors,” said Parakh.

Sectors, stocks to buy

Manish Chowdhury, the head of research at StoxBox, prefers large-cap banking sector stocks as he believes that the valuation of these companies is reasonable and these companies are much better placed to handle any unforeseen asset quality stress going ahead.

“Our top picks in this space include HDFC Bank, ICICI Bank and SBI, which offer a good risk-reward from a one-year perspective,” said Chowdhury.

Chowdhury also sees value in the cement space. He expects volumes to improve in the next two quarters, backed by higher government spending across sectors such as infrastructure and housing.

“Improved operational efficiency and any price hikes by cement companies in the peak demand season would further tilt scales in their favour. Ambuja Cements and Shree Cement are our preferred picks in the cement sector,” Chowdhury said.

Poddar of Motilal Oswal Financial Services is overweight on IT, healthcare, BFSI, consumer discretionary, industrials, and real estate. However, she is underweight on global sectors like metals and oil and gas.

Prashanth Tapse, Senior Vice President – Research, Mehta Equities, the real estate sector looks bottomed and any cut in interest rates by RBI can give stimulus support for the sector to perform. The pharma sector also looks good after long consolidation and is ready to perform. Investors should also focus on the auto sector after a 15 per cent correction from the top.

Tapse believes the auto sector will consolidate for one to two months at the current range, providing an opportunity to accumulate top leading automobile companies.

Tapse also expects the FMCG sector to see some traction if the inflation trend reverses. Besides, any interest cut by the central bank can bring back growth in the sector, feeding consumption demand.

“If we see any revival in rural and urban demand, Hindustan Unilever (HUL) can recover, but at a slower pace. Technically, HUL will consolidate in the current range of ₹2,400-2,500 levels before making a fresh move. The level of ₹2,720 looks like strong resistance, and closing above this level, we may see a string rally towards its recent high of ₹3,035, but it looks like it will take three to six months to retest the new highs,” said Tapse.

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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.