Expert View | Adopt long-term approach to ride out short-term volatility; BFSI ‘attractive’ for 2025: Mohit Batra | Stock Market News

Expert View: The Indian stock market’s performance in 2024 was notably positive, with the domestic equity benchmarks Sensex and Nifty 50 logging gains of nearly nine per cent each. Nifty 50 crossed its milestone from 22,000 to 26,000 in a relatively short period. However, the second half of the year was met with significant volatility amid both domestic and global triggers.

Several triggers, including new global trade patterns, higher tariffs, and shifts in domestic monetary policy, are expected to impact stock market sentiment in the coming year. These factors will likely create a dynamic environment, offering investors both opportunities and challenges in 2025.

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Before the Indian stock market enters the new year 2025, Dr Mohit Batra, Founder of MarketsMojo, said in an interview with Mint’s Nikita Prasad that 2025 would likely present a more challenging investment landscape and that investors must adopt a long-term perspective amid bouts of volatility. The D-Street expert believes the BFSI sector’s valuation is attractive and will likely pave the way for greater inflows, particularly in private banks.
 

Edited excerpts from the interview:

1. How do you view the Indian stock market’s performance in 2024? What are the key triggers that will impact the Indian stock market in 2025?

In 2024, the defining factor for the Indian equity market was the resilience of retail investors. Unlike in previous years, retail participants displayed a commendable maturity by leveraging volatility as an opportunity rather than a deterrent. Retail investors deployed record-high funds into equities, surpassing the previous peak in 2021 and consistent SIP inflows into mutual funds. 

This reflects an evolving understanding of equity markets as a critical tool for long-term wealth creation. Despite muted foreign portfolio investor (FPI) inflows, the robust participation of retail investors provided significant support, mitigating the impact of weak FPI activity.

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Looking ahead to 2025, several challenges warrant attention. Key among these are potential policy shifts in the US following Donald Trump’s inauguration in January. India’s economic growth has softened over the first two quarters of the current fiscal year, with GDP numbers for the December quarter also expected to remain underwhelming. Reviving growth will necessitate decisive policy action from the government, making such reforms a crucial market trigger.

Additionally, food inflation is emerging as a significant concern for central banks globally. Elevated food prices could influence interest rate cycles, delaying expected rate cuts. Another critical factor is the potential rate hike from the Bank of Japan, which, if realised, could disrupt global capital flows, impacting market sentiment. These triggers underscore the importance of strategic and adaptive market navigation in the coming year.

2. Which sectors are poised for high growth potential in 2025? Should investors focus on domestic cyclicals amid a slowdown in GDP?

We anticipate that the government will prioritise infrastructure spending in 2025, especially given the relatively restrained spending in 2024. This renewed focus should significantly benefit sectors associated with infrastructure development. Private sector banks are also poised for a strong rebound. Following two years of underperformance, their attractive valuations position them as potential outperformers in 2025.

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As a contrarian play, we see value in the FMCG sector. Despite facing multiple headwinds in recent years, the sector appears to have weathered the worst. A revival in urban demand is expected, coupled with margin expansion for FMCG companies, which could drive strong performance in the year ahead. Collectively, these sectors present compelling opportunities for investors seeking growth amid economic uncertainties.

3. How will US President-elect Donald Trump’s administration impact the US and the Indian stock market? Should we be worried about FPI outflows?

The impact of Donald Trump’s administration will largely depend on the policies implemented, particularly regarding tariffs and trade agreements. While some campaign promises may translate into actionable policies, others could serve as negotiating tactics rather than hardline measures.

FPI flows into India were subdued in 2024, following record inflows in 2023. However, we anticipate a shift in 2025, with the US market likely to underperform, potentially redirecting flows to emerging markets like India. This could result in FPI inflows of ₹75,000 crore to ₹1 lakh crore for the year. Additionally, many FPIs remain underweight on Indian equities, a positioning that we expect will be corrected in 2025, further supporting FPIs flows.

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4. What are your top stock picks for 2025, especially from the IT and BFSI pack? Will IT stocks generate high returns with the US Fed’s hawkish stance?

We currently favour a greater allocation to the BFSI sector between IT and BFSI. After underperforming in the last two years’ market rallies, BFSI valuations have become attractive, paving the way for increased inflows, particularly in private sector banks. The anticipated rate cuts by the Reserve Bank of India (RBI) in 2025 will further enhance the sector’s appeal. The upcoming Union Budget will likely announce measures to boost private capital expenditure, which could drive growth in banks’ corporate loan books.

5. What should be the trading strategy for retail investors in 2025 in case of volatility? Where do you see Sensex and Nifty reaching by the end of 2025?

The market in 2025 is expected to be more selective, with specific sectors driving performance instead of a broad-based rally. This environment will require investors to adopt a disciplined stock selection and risk management approach. Unlike the relatively straightforward gains seen in 2023 and 2024, the coming year will likely present a more challenging investment landscape.

India remains well-positioned to be one of the top-performing markets globally over the next decade. Retail investors should adopt a long-term perspective, ideally a five-year or more horizon, to ride out short-term volatility. Every market correction should be viewed as an opportunity to increase equity allocation, reinforcing the principles of disciplined investing (not trading) for sustained wealth creation.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts, consider individual risk tolerance, and conduct thorough research before making investment decisions, as market conditions can change rapidly, and individual circumstances may vary.