In an exclusive conversation, he shares insights on why the worst may be behind for Dalal Street, how recent rate cuts by the RBI are setting the stage for a liquidity-driven rally, and why sectors like BFSI, Defence, and Infrastructure are poised to lead the next leg of growth.
Gupta also weighs in on global cues, including US-China trade tensions, the case for international diversification, and sectors that may be overheating.
His outlook blends cautious optimism with a strategic approach to asset allocation, making it a must-read for investors preparing for the next market move. Edited Excerpts –
Q) June is turning out to be a volatile month for D-Street. How is 2H2025 likely to pan out for Indian markets? Do you think most of the negatives are behind us?
A) Last one month we have seen a lot of volatility, the result being that Nifty has been range bound, moving in a zig-zag pattern and not finding a one-way direction.
This is mostly because of mixed news coming in and out and investor sentiment undecided. While there are green shoots in corporate earnings, interest rates, inflation and growing demand, there are certain critical issues that still persist.
Geo-political unrest and foreign fund inflows are still a matter of concern. In H2 2025, I think we can expect this lingering negativity to go away, if India inc. numbers continue to get better we will see a one-sided upward movement in the market.
Certain sectors like Infra, Health, BFSI will continue to grow and support the broader market. India while growing at 6.5% is still the most promising emerging market in the global economy and there is only upside from hereon.
Q) What does 50 bps cut mean for equity and bond markets? What should be an asset allocation strategy?
A) RBI’s rate cut of 50 bps in their latest MPC meeting was more than what was expected on the street. Following that up with a cut in CRR ratio has ensured massive liquidity push in the credit market.
If we talk about the impact on the investment side, we have now seen a one-sided reduction in the repo rate of 100 bps since February 2025 that will have a positive impact on the bond prices as they are inversely proportionate to the interest rates.
We are advising clients to look at short term bond funds and expect accrual income in the future. On the equity side, we are expecting a liquidity boost, due to fall in the interest rates and fixed deposits investors are most likely to deploy less funds in these assets.
Additional liquidity may boost up equities. Our asset allocation strategy is to shift Debt investments from long term funds to short term funds while not increasing overall allocation to debt because we are expecting equities to outperform in h2 2025.
Q) What is your take on Q4 earnings from India Inc.? Any hits and misses which you tracked in the results?
A) If we review Q4 earnings, aggregate profit after tax (PAT) for BSE 500 companies grew by 10% Y-o-Y and by 9% for the full FY25. There was sluggish domestic consumption and limited government spending in the first half due to elections and a volatile geo-political environment.
This was a big step down from a stellar performance in FY24 that saw a 30% growth. BFSI sector stood out, contributing 1.84 % to the GDP and posted improved profits.
Almost all stakeholders in the sector, MNCs, Private firms, Small & Midcap companies performed well. Metals, Telecom, Chemicals and Cement also supported positively to the growth. Certain sectors that showed sluggishness were PSUs, Industrials and IT.
FY26 could see a turnaround, we expect the PAT growth to improve in most sectors on account of increase in demand and stability on the global trade front.
US tariff wars could see a conclusion and that should bring a much needed respite and decrease volatility.
We are bullish on BFSI which will continue to shine and have another good year, Agriculture and Defence is also looking to outshine in FY 26.
Q) Nifty Bank hit a record high in June which suggests that there is a lot of interest in banking stocks. What is fueling rally in financials – is it the rate cut by RBI?
A) As we discussed earlier, the BFSI sector has stood out in FY25 as an outperformer. Bank Nifty hit a record high in June following earnings growth numbers and a positive outlook for FY26.
What was more positive is that we saw broad based growth across all verticals in BFSI. Banking, Wealth, Insurance across small , mid and large cap companies saw increase in earnings.
If we look at number, on Y-o-Y basis, there was a 16% increase in PAT, 14% increase in Non-Interest Income, 13% increase in retail advance and 14% increase in MSME advances. These are very healthy numbers across the board.
Recent rate cuts by RBI has definitely helped banks by providing excess liquidity but is not the only reason fuelling this rally. RBI rate cuts were as recent as February but we have seen good numbers coming in all through FY 25.
Key factors supporting this rally are more on the fundamental side, most banks now have significant revenues coming in from non-interest activities such as wealth and insurance. They are high margin businesses with a huge growth potential.
India still underserved and under penetrated when it comes to financial services; hence, there is a significant head room.
Banks are sitting on credible data and are able to convert their existing CASA customers by cross selling and thus increasing their revenue per client.
On the credit side, the growth cycle is strong and is expected to grow at 13-14% which should continue to support profits. NBFC’s credit growth outpaced banks and will continue to do so in FY26.
Q) Which sectors are likely to remain in limelight in the 2H2024?
A) We are bullish on BFSI, with the recent RBI rate cut we can expect strong liquidity. There is scope for penetration for financial services, credit growth is growing strong. Supported with slight improvement in demand, we should see this sector giving another strong year.
We are also taking positive calls on Defence fulled by governments efforts to have a self-sutainable defence industry and reduce the dependency on imports.
The order pipeline here looks solid and defence production is projected to reach from Rs. 1.75 Trillion in FY25 to Rs. 3 Trillion in FY 29. The ministry of defence has already singed a record 193 contracts worth Rs. 2 Trillion.
Out of these 177 contracts were handed to domestic companies, this shows the governments commitment of making India a defence manufacturer in their own right.
Infrastructure and related sectors are also looking bullish, policy support is on their side particularly in the areas of renewable energy and power generation.
Big infra companies will continue to benefit from India’s growing infra need in Roads, Airports, Dams and Railways.
Q) The tonality keeps changing from the US when it comes to ‘Trade Talks’. Do you think it is still a relevant headwind for equity markets across the globe?
A) In our view, US trade talks were never a major factor for equity markets in India. Yes, they played a role for equity markets across the globe, but for India it never posed a very big problem.
There was a lot of stir created early on when the tariff wars started but soon it was realised that it was more of a bargaining stunt to get the stakeholders on the table to negotiate rather than a permanent change of structure in the global trade ecosystem.
My only point of concern is FII inflow into our equity markets. While our DIIs have been a major support, we can’t ignore the validation that comes from FIIs and the quantum of their capital that ensures Indian equities are in green.
Trade Talks create a little uncertainty that results in institutional money being kept at bay, that’s the only relevant headwind I think that matters.
Q) China equity markets are up in double digits while we have underperformed most EM peers. Does it make a case for global diversification?
A) China equity in recent times have outperformed all the other EMs. This is a little ironical seeing how the main target of US trade wars is China, and their companies are facing an uphill battle in case tariffs are increased substantially.
I would still refrain from considering the Chinese stock market as an investment destination. The main reason being the opaqueness of the country and the dictatorial laws that can be brought down by the government onto the private sector.
Inspite of giving double digit returns, the 3-yr performance of China based Mutual funds is still as low as 2%.
For global diversification I think US tech stocks are a better bet. With AI changing the face of computing, I think the biggest beneficiaries will US companies who are the biggest stakeholders.
Historically as well, US companies are at the center of every digital / computer revolution that has happened and I don’t see why it should be any different now.
Q) Which sector(s) is/are looking overheated and why?
A) In Indian markets, I think one can be cautious while investing in Auto. FY25 saw a modest growth of 6.4% driven by passenger and two wheelers while the commercial vehicles growth remained flat.
We have seen an impressive performance over last 24 months with increased sales across all verticals but going forward I think it’s a little over heated.
Also, the EV industry is giving the sector some headache, while most auto companies have installed EVE capacities, consumer acceptance of EV is not growing at a desirable pace.
Adoption has been slow and due to EV related lack of Infra it is not expected to pick up very soon. We are also expecting a cyclical slowdown in sales, only silver lining are the SUV sales which continue to grow but other passenger vehicles along with two wheelers are looking bleak.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
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