ETMarkets Sensible Speak | Keep away from overpriced defence, journey, and client staples: Arun Poddar’s warning record

Q) After a secure Could, the market turned risky in June. 1H2025 has been sturdy with Nifty closing within the pink in simply 2 out of the final 5 months; nevertheless, we nonetheless underperformed EM friends in 2025. How do you see markets within the medium-to-long time period?

A) Indian fairness markets have delivered a powerful efficiency within the first half of FY25, with the Nifty 50 rising by roughly 12% between March and Could.

That is virtually double the 6.6% acquire registered by the MSCI Rising Markets Index throughout the identical interval.

The rally was largely pushed by sturdy company earnings, notably from personal sector banks, and a cooling of worldwide commerce tensions.

Stay Occasions

Nevertheless, regardless of the rebound, India’s year-to-date positive aspects in USD phrases nonetheless lag behind rising market friends.

The MSCI India index is at the moment buying and selling at a big premium—round 20 to twenty.5 instances ahead earnings—in comparison with roughly 12 instances for different rising markets.

This has led to elevated hedging exercise, with overseas buyers including roughly $2 billion in Nifty futures shorts in early June.

India continues to be a structurally robust market, supported by stable home consumption and minimal dependence on China.

With GDP development anticipated within the vary of 6.3% to six.8% for FY26, we stay constructive on the long-term outlook.

Nevertheless, buyers needs to be ready for bouts of volatility, pushed by elevated valuations and world uncertainties.

Q) What’s your tackle the end result of the MPC assembly in June? What’s the trajectory you foresee for charges in 2025?
A) The RBI’s Financial Coverage Committee delivered a larger-than-expected 50 foundation factors charge minimize in June, bringing the repo charge down to five.5%.

Moreover, the Money Reserve Ratio was lowered by 100 foundation factors to three%, injecting important liquidity into the banking system.

This coverage shift was made potential by benign inflation, with CPI at 3.2% in April, and goals to assist development.

The RBI additionally revised its FY26 inflation forecast downward to three.7%, effectively under its goal of 4%, whereas sustaining its GDP development projection at 6.5%.

The change in stance from ‘accommodative’ to ‘impartial’ indicators that additional charge cuts could also be restricted. We count on at most one further minimize in 2025, and anticipate a chronic pause thereafter until development exhibits important indicators of weak point.

Q) Which themes look enticing to you for the following 6–12 months amid commerce conflict fears, a powerful greenback, and a potential state of affairs of falling rates of interest?
A) A number of themes seem compelling within the present macro surroundings. We see robust potential within the monetary sector, notably amongst massive personal banks and clean-balance-sheet PSU lenders.

The mix of decrease funding prices and ample liquidity is prone to revive credit score development, particularly within the retail and MSME segments.

The auto and rural consumption sectors are additionally anticipated to carry out effectively, supported by a beneficial monsoon which tends to spice up farm incomes and rural demand.

Rural India accounts for a big share of two-wheeler and entry-level passenger car gross sales, and we anticipate a optimistic quantity impression within the coming quarters.

In FMCG, firms with deep rural penetration stand to learn, notably these centered on staples moderately than discretionary items.

Industrial and infrastructure shares are supported by authorities capex, defence spending, and ‘Make in India’ initiatives. Nevertheless, selectivity is essential as valuations in segments like personal defence are already elevated.

India stays comparatively insulated from world commerce conflicts, which provides to the attractiveness of home demand-driven sectors reminiscent of consumption, financials, and infrastructure.

Q) The IMD has predicted a standard monsoon in 2025. Do you see this supporting consumption and auto shares?
A) Sure, a powerful monsoon is probably going to offer a significant increase to rural demand. The IMD has forecast rainfall at 106% of the long-period common, with June anticipated to be notably robust.

That is optimistic for farm incomes and can instantly assist sectors like cars, notably two-wheelers and rural passenger autos.

FMCG firms that generate a big portion of their revenues from rural markets will even profit, particularly these centered on important items.

Furthermore, an excellent monsoon helps in protecting meals inflation in verify, additional supporting discretionary rural consumption.

Q) How do you see flows—FIIs have lately turned optimistic on Indian markets, whereas DIIs have supported the rally. Do you see a reversal of flows into Indian markets?
A) Overseas institutional buyers had been web patrons throughout March to Could, pumping in almost ₹17,000 crore into Indian equities.

Nevertheless, early June information suggests a shift in sentiment, with FIIs including important brief positions within the derivatives market, indicating warning round additional upside.

Then again, home institutional buyers, together with mutual funds and insurance coverage firms, have maintained their bullish stance with over ₹3 lakh crore in web fairness purchases year-to-date.

Retail participation by SIPs additionally stays robust. Going ahead, we count on DII flows to stay a secure supply of assist, whereas FII flows will doubtless stay delicate to world macro elements such because the US greenback trajectory, rate of interest expectations, and geopolitical developments.

Q) Is there any theme or sector the place one ought to keep away from contemporary investments within the present surroundings?
A) Buyers needs to be cautious about sectors with overstretched valuations and restricted earnings visibility. This consists of sure segments inside client durables and FMCG staples.

We additionally suggest prudence in personal defence shares, that are buying and selling at very excessive multiples, and in journey and tourism firms that will face world demand headwinds.

Inside financials, smaller banks and NBFCs with governance or asset high quality points needs to be prevented till there’s higher readability on their fundamentals.

Q) Have you ever seen the latest pattern of block offers going down? Is that largely promoter promoting? If sure, is {that a} worrying signal for shares or is it enterprise as standard?
A) There has certainly been a spike in block offers, with promoters offloading shares value roughly ₹43,400 crore in Could alone. These embody notable transactions reminiscent of InterGlobe’s stake sale, BAT’s exit from ITC, and Singtel decreasing its stake in Airtel.

Whereas many of those gross sales are linked to liquidity provisioning for institutional buyers or funding new enterprise ventures, large-scale promoter exits close to market highs can affect sentiment.

You will need to consider the context—gross sales geared toward decreasing debt or facilitating new investments are usually not trigger for concern. Nevertheless, indiscriminate promoting with out clear rationale might be a sign to tread cautiously.

Q) What’s your name on the small and midcap house? Are they nonetheless buying and selling at costly valuations, and are massive caps a greater play proper now?
A) Regardless of significant corrections since their peaks in December 2024, small and midcaps are nonetheless buying and selling at elevated valuations. The SmallCap100 is down round 22%, and the MidCap100 has declined by roughly 18%.

Even after the pullback, small caps are buying and selling at about 24.5 instances ahead earnings in comparison with their 10-year common of 16 instances. Midcaps are buying and selling at almost 36 instances, effectively above their historic common of twenty-two instances.

As compared, the Nifty50 is extra fairly valued at round 19.9 instances ahead earnings. Given this backdrop, we choose massive caps and choose midcaps with robust steadiness sheets and constant earnings visibility.

Small and midcaps could have to see additional valuation adjustment earlier than changing into enticing once more.

Q) Many buyers who stayed on the sidelines at first of 2025 at the moment are experiencing FOMO. Ought to they undertake staggered shopping for, hold money, or do a lump sum funding?
A) At present market ranges and given the volatility we’ve seen, a staggered or systematic method is advisable. Buyers ought to think about deploying capital in phases—both by SIPs or by setting purchase ranges at 3–5% corrections in high quality shares.

It’s additionally clever to take care of some money allocation to reap the benefits of market dips. A disciplined, gradual entry technique helps mitigate timing dangers and aligns higher with long-term wealth creation targets.

Q) COVID circumstances are rising. Can this gas hospital shares, or ought to buyers control that theme? What are your views?
A) As of June 8, energetic COVID-19 circumstances in India stay comparatively low at simply over 6,100. Whereas hospital shares did entice some secure haven shopping for in April, valuations within the sector are already elevated.

A reasonable improve in circumstances is unlikely to drive important earnings development for healthcare firms. That mentioned, the sector stays a sound defensive allocation.

For these healthcare, we suggest specializing in operationally robust and cash-rich suppliers. Vaccine and diagnostics play may even see some exercise, however buyers needs to be cautious about overpaying in a high-multiple surroundings.

(Disclaimer: Suggestions, solutions, views, and opinions given by specialists are their very own. These don’t signify the views of the Financial Instances)