Devarsh Vakil, Head of Prime Research at HDFC Securities recommends that investors adopt a selective approach, focusing on large-cap stocks as they offer superior risk-adjusted returns. Vakil also added that large banks are poised to navigate this cycle effectively and are currently available at very attractive valuations. Recoveries from stressed assets will likely aid PAT growth for some PSU banks. Edited Excerpts:
How will you rate the Union Budget 2025?
The 2025 budget is a bold and visionary document that will shape India’s future. The budget simplifies the income tax structure and makes it more efficient.
The government has graciously extended the tax-free threshold to a remarkable ₹12.75 lakh (individual-salaried taxpayers) under the new tax regime. This magnanimous gesture translates into an unprecedented infusion of ₹1 lakh crore into the hands of middle-class households nationwide. Such a substantial enhancement to disposable income promises to invigorate the marketplace, mainly benefitting the fast-moving consumer goods sector and durable goods manufacturers, as families find themselves empowered to fulfil their essential needs and aspirational purchases with renewed confidence.
What do you think worked and what didn’t in this budget?
The budget’s emphasis on consumption-oriented measures, coupled with a relatively modest increase in capital expenditure allocation, signals a shift in focus from strengthening fiscal multipliers through capex to prioritising immediate economic gains. The government is banking on rekindling animal spirits and encouraging the private sector to take the lead in investments by prioritising consumption growth and strengthening the health of the agriculture sector.
Rail stocks fell post the budget. Is it a good time to buy them?
Long-term prospects of the railways stocks are bright and the current fall offers an opportunity to accumulate.
Post the budget, which sectors should investors bet on and stay away from?
We believe large banks are poised to navigate this cycle effectively and are currently available at very attractive valuations. Recoveries from stressed assets will likely aid PAT growth for some PSU banks. Credit growth is expected to be around 12 per cent amid a slowdown in unsecured retail demand. Banking sector earnings would clock a low double-digit CAGR over FY25-27E.
Why do you believe the FPIs are selling consistently? Do you see a change in trend soon?
India’s growth slowdown and higher valuations have reduced the attractiveness of Indian equities compared to other markets. Some of the selling from FPIs is part of a broader sell-off in emerging markets ETFs. Once we see the Indian currency stabilising against the USD and better economic growth numbers from the economy, the FII selloff trend could reverse.
What are your views on Trump’s tariff announcements?
Tariffs can negatively impact the Indian economy by raising import costs and potentially diminishing export competitiveness, potentially leading to inflation and slower economic growth.
Would you recommend buying mid-caps and small-caps at current valuations?
We recommend that investors adopt a selective approach, focusing on large-cap stocks, which we believe will offer superior risk-adjusted returns compared to mid- and small-cap indices, driven by comparatively stronger earnings growth and more attractive valuations.
What would be your one piece of advice for new investors? How should one prepare their portfolio from here on?
For new investors, it is paramount to remain informed about market trends and policy changes. Navigating these uncertain times requires a well-defined asset allocation plan, including a diversified portfolio focused on fundamentally strong investment opportunities.
The current market pullback presents selective opportunities as domestic economic indicators show green shoots of recovery, with improving manufacturing activity, credit growth, and consumption patterns. While a sharp V-shaped recovery may be unlikely in the near term, the market appears to be forming a base at current levels, potentially setting the stage for steady appreciation over the longer horizon as fundamentals strengthen.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
