Expert view: Achin Goel of Bonanza on Q4 earnings, high-growth sectors, top stock picks

Mint

23-04-2025

Expert view on Indian stock market: Achin Goel, Vice President at Bonanza Group, believes India's stable economic fundamentals and anticipated earnings growth may attract significant foreign investments. Goel is optimistic about the Indian stock market and said, in an interview with Mint, that after the recent correction, investors can enter fundamentally strong mid and small-cap stocks with a long-term view. Here are edited excerpts of the interview:
Despite a temporary pause, uncertainty surrounding US President Donald Trump's tariffs continues to cast a shadow over Indian equity markets, creating volatility and investor anxiety.
The imposition of reciprocal tariffs—26 per cent on Indian exports to the US triggered sharp declines in benchmark indices like the Sensex and Nifty 50.
However, India's relatively lower tariff burden compared to China, combined with its strong domestic economy and ongoing trade negotiations, positions it advantageously to capture market share in the US, potentially boosting corporate earnings.
To navigate these turbulent times, Indian equity investors should focus on diversification strategies, including stocks from sectors that are less dependent on exports, especially in the US, such as defence, renewable energy, manufacturing, consumer goods, etc.
Additionally, investors are advised to adopt a long-term perspective, capitalising on lower valuations during market dips while staying informed about evolving trade policies and monetary measures like the RBI's rate cuts to support growth.
This cautious yet proactive approach can help Indian investors mitigate risks and seize emerging opportunities amid tariff-induced uncertainty.
The US-China trade war is expected to have several implications for the Indian equity market.
Initial uncertainty had resulted in FPI outflows, but the market demonstrated strong resilience by rebounding and positioning itself as a safe haven.
We expect a reversal in FPI outflows, driven by strong domestic growth and India emerging as a supply chain alternative to China.
Further, India's less direct revenue exposure to the US than other Asian countries provides some insulation from the trade tensions.
Besides initial concerns over stretched valuations and FPI outflows, India's stable economic fundamentals and anticipated earnings growth are expected to attract renewed investment.
Compared to other emerging markets, India is well-positioned due to its strong economy and stable earnings, which will eventually bring back flows to the Indian equity market.
Q4FY25 earnings season for Indian companies is expected to be largely muted, with earnings growth projected at a modest 2 per cent YoY for Nifty 50 companies.
However, certain sectors and companies are poised for notable upgrades.
Metals are expected to deliver a strong performance with earnings growth around 24 per cent YoY. At the same time, telecom may turn profitable after losses, and healthcare is forecasted to grow by 11 per cent YoY.
Financials show a mixed picture with ICICI Bank reporting a robust 18 per cent YoY profit after tax growth in Q4, signalling strength in private banking, but private banks overall may see a 3 per cent earnings decline, PSU banks a slow 4 per cent growth and NBFCS a slight dip.
While broad earnings growth remains subdued, sectors like metals, telecom, healthcare, select financials and logistics firms could drive some positive surprises in Q4FY25.
We advise investors to focus on domestic themes that leverage the robust economic growth and government initiatives.
Key sectors offering significant opportunities in 2025 include the electric vehicle (EV) industry, another high-growth area, supported by government incentives and projected to expand exponentially, particularly in two-wheelers and battery technology.
Infrastructure remains a critical theme, backed by massive government projects like the National Infrastructure Pipeline and Smart Cities Mission, promising long-term stable returns.
Additionally, real estate is gaining momentum due to urbanisation and demand for commercial spaces linked to IT and manufacturing growth.
Renewable energy and healthcare also present attractive prospects amid rising consumer demand and policy support.
After the recent US tariffs and the consequent market fall, investors can look for mid-cap and small-cap stocks, as after a sharp correction in early 2025, these segments have shown resilience and strong growth potential.
After a period of decline, the Nifty Smallcap 250 and Midcap 150 indices are beginning to stabilise and even rally, led by interest of FIIs in mid and small-cap stocks, recognising their high growth prospects amid India's expanding economy.
Mid and small caps have historically outperformed large caps, delivering annual returns of 16-19 per cent over the past decade, and current valuations have become more attractive after the recent correction.
However, investors should be cautious and thoroughly research fundamentals, corporate governance and diversification.
The current market falls, led by the US tariffs war, can be seen as an opportunity to enter into fundamentally strong mid and small-cap stocks with a long-term view.
Top picks in the Indian financial sector for investment in 2025 include major private banks like HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank and public sector giants such as State Bank of India and Bank of Baroda.
These banks boast healthy P/BV ratios and consistent growth, reflecting robust asset quality and improved balance sheets with NPAS at a 13-year low.
Small finance banks like Utkarsh Small Finance Bank and Suryoday Small Finance Bank also present attractive growth potential due to their focus on underserved segments.
In the NBFC space, Jio Financial Services stands out for its innovative approach targeting semi-urban and rural markets.
The BFSI sector benefits from India's growing digital transactions, fintech adoption, and regulatory reforms, making it a key driver of economic growth with promising long-term stability and returns.
Indian PSU stocks present a mixed yet promising opportunity at this juncture.
Despite a weak FY25 where 73 per cent of PSU stocks fell, the segment has delivered strong multi-year returns, with the BSE PSU index up over 80 per cent in two years, driven by government capex and reforms in defence, power, and railways.
Key PSU stocks like ONGC, trading at a low P/E of 7.9 with a 5 per cent dividend yield, and Power Grid, with a 3.5 per cent yield and expansion plans, remain attractive for income-focused investors.
NTPC, with its renewable energy push and a lower multiple of 16.2, also offers growth potential.
Defence PSUs such as Hindustan Aeronautics and Bharat Electronics show strong fundamentals and robust profit growth, making them good long-term bets.
India's medium-term alpha generation prospects lie prominently in domestic consumption-focused sectors like private sector banks, electric vehicles (EV), renewable energy, healthcare, insurance, chemicals, defence, electronics manufacturing services and infrastructure.
Private sector banks are expected to generate significant alpha in 2025 due to improving asset quality and growth potential. The EV sector is booming, driven by government incentives and a projected CAGR of over 66 per cent, making it a key growth area.
With India ranking fourth globally and ambitious capacity targets, renewable energy offers strong investment opportunities supported by government policies.
The healthcare and insurance sectors are expanding rapidly. The healthcare market size is expected to nearly double by 2028, and insurance penetration is rising.
Chemicals, defence, and electronics manufacturing services are also poised for growth despite high valuations, supported by scalability and government focus.
Infrastructure, backed by massive government spending through initiatives like the National Infrastructure Pipeline and Gati Shakti, remains a stable long-term investment opportunity.
India's growth-inflation dynamics in FY26 are expected to reflect a moderate yet resilient expansion amid global uncertainties.
The RBI projects real GDP growth at 6.7 per cent, supported by strong household consumption, a robust industrial recovery and favourable agricultural output, particularly the Rabi crop.
We expect a revival in capex expenditure due to higher capacity utilisation and government capital investment.
Inflation is forecasted to moderate to around 4.8 per cent for FY26 and further ease to 4.4 per cent by Q4, driven by softening food prices and stable energy costs, assuming a normal monsoon.
However, risks remain from global geopolitical tensions, tariff wars and commodity price volatility.
Overall, we expect India's economy to be poised for balanced growth with controlled inflation, benefiting from supportive fiscal and monetary policies, structural reforms, and resilient domestic demand despite external headwinds.
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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of the expert, 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.
First Published: 23 Apr 2025, 01:06 PM IST