The last 15 trading sessions of 2024 are remaining and all eyes are now on recommendations for the brand new year ahead. After the stupendous run in 2024 so far, can investors brace up for more gains in 2025? Speaking to Financial Express Online, Nilesh Shah- MD at Kotak Mahindra Asset Management says one needs to be prepared for volatility in the new year and equity returns are set to moderate. He is however confident that the worst of FII outflow is over.
He highlighted that valuations hold the key, “The idea is to buy in stocks which will outperform from the market. And by and large, the thumb rule is that if you’re buying stocks which are cheap or reasonably valued, you are likely to see market outperformance. But it’s not as simple. We also have to worry about liquidity. We also have to worry about mandate of the fund. We also have to worry about benchmark indices. So it’s a fairly complex thing.”
Right investment strategy for 2025?
Asset allocation, as per Shah, is crucial but investors need to be prepared for volatility in 2025, “Investors should focus on asset allocation. But for 2025, one must moderate the equity return expectations. Be ready for volatility, because there are so many events happening geo-politically and that’s bound to have some impact on India. On the debt side, go for longer duration investment. Over next 18-24 months, we believe interest rates will come down, and hence longer duration investments will deliver better returns.”
Apart from equities, precious metals is another key area for Shah, “In precious metals, we are Overweight, but not on a yearly basis, on a three-five year basis, as precious metals will witness buying support from Central Banks around the world, or in case of silver, by industry.”
IPO watch
The primary markets continue to buzz. More than 11 IPOs are opening in the penultimate week of the year. Given the huge volume of retail interest, Shah highlights some key factors that one needs to keep a watch on – “If people investing in primary markets based on grey market premium- one needs to be careful. Whether the investment is in primary or secondary market, one needs to study the company and invest into it. Just because IPO is coming doesn’t mean that it will always open at a premium. It can open at a discount too. Do not change the investment approach. Do your research before investing in a company.”
Worst of FII selling over
October and November saw huge FII outflows. Foreign Portfolio Investors sold stocks worth nearly Rs 26,000 crore in November after a Rs 94,000 crore worth of sell-off in October. “We saw that a large amount of FPI flow was moving out of India and going to US after President Trump got elected. He is expected to announce tax cuts, which will increase the profitability of US companies and prices as a result. On the other hand, Indian markets were trading at high valuation, and in every FPI portfolio, this is one Emerging Market which delivered great returns. They lost money in China, they lost money in Brazil. They lost big money in Russia. India was the only Emerging Market where there was money. So combination of high valuation of Indian markets, profit in Indian market and US markets moving up all came together for investors to take a call that take some money out of India,” explained Nilesh Shah.
However, he believes that the worst of that trade is over by and large, “Not many people would lwant to remain Underweight on a growth story like India. Eventually they will all come back trying to figure out where to invest. And my feeling is that this time, domestic investors have done a great job. Mutual fund distributors have handled customers very well, and when FPIs also join in prices will start moving higher.”
Earnings trajectory in Q3
Earnings have been another area of concern for the investors. Nilesh Shah added that it’s likely to be around the same levels that was seen this year, “Earnings growth this year, in the first half is about Rs 550 per share for Nifty. In the second half, Nifty earnings is expected at about Rs 500 -525 per share. It’s the next year’s earnings where people are expecting Nifty EPS of Rs 1250 and in our opinion that number could be below Rs 1200.” However, he added that “what’s encouraging is that in India’s case, when there is an earnings miss, its deferred to the next quarter but in many other countries, the deferment may be to the next year.”