ETMarkets Smart Talk: Agriculture, consumer durables and insurance could be dark horses in FY25: Kush Gupta

In an interview with ETMarkets, Gupta said: “The new government will raise capital expenditure, a better than normal monsoon is expected to support agriculture, crude oil prices have come down which should support inflation,” Edited excerpts:

Now that the election uncertainty is over, where is the market headed?
Elections in the past have always seen sharp volatility before and after the election, but history shows that markets eventually stabilise within one to six months after the election.

Of the various factors that D-Street evaluates, political stability is the most desired factor. Nobody wants policy paralysis. I think the election result has created a lot of anxiety among investors.

There was a lot of excitement about the results and expectations were also very high, the exit polls made the situation worse and then the Sensex crashed along with the expectations.

The primary fear is that a coalition government will make it difficult to pass reforms; India has been moving at the same pace for 3-4 years and a sudden brake would render all efforts futile.

Another factor is that post Covid we have seen a huge increase in domestic participation, these new investors have enjoyed higher returns beyond their targets and I think psychologically it has become the norm.

Most of them have not seen recessions or downturns like the 2008 global financial crisis or even the downturn during Covid.

This is their first election cycle, so a fearful reaction to the unexpected is natural. I think as soon as a new government is formed, Parliament resumes, D-Street will be confident normality will return.

The political landscape has changed. Will this change your goals on D-Street?
In the last five elections held since 1999, Indian stock markets have always given positive returns six months after the elections.

This includes the formation of coalition governments and less favourable results than the current government. I think there will be a continued focus on infrastructure, Make in India, energy self-sufficiency, defence, etc.

However, greater attention should also be paid to broader development projects such as employment, rural incomes, water for all, electricity for all and poverty alleviation.

The political landscape may have changed, but our goals for the Indian markets have not changed, at least not in the current landscape. We have seen coalition governments in the past work well and drive economic growth.

India’s growth story remains strong, our foreign exchange remains at $650 billion level, SIPs are reaching Rs 20,000 crore per month, GDP growth is at 8.20%.

At the moment, we are not worried about changing our long-term view on the Indian stock market.

How can FIIs view D-Street amid political uncertainty? The valuation premium was on stable fundamentals, but the new government may come with a different agenda. What are your thoughts?
If we look at the FII data of last 3 years, since 2022 they have not invested any huge amount in Indian markets.

In May itself, just before the elections, we saw an outflow of $3.5 billion. Foreign investors consider Indian markets expensive and they are not always in favour of devaluation of the rupee.

I have a contrarian view about this election result on FIIs behaviour, with some improvement in the markets, we may see foreign investments coming back.

While stable fundamentals require a higher premium, FIIs have never accepted it or invested at a higher premium.

Apart from the political scenario, Indian companies are still very profitable, there is a large middle class that will continue to drive consumption, there is huge scope for growth in almost every sector.

These are factors that will continue to attract foreign investment, especially when other developing countries such as China, Russia or Brazil are themselves struggling.

With the right valuations we can get back into their sights, Indian stock markets can again become attractive to global investors.

Which competitor could be lurking ahead in FY25?
I think some of the sectors that may surprise us are agriculture, consumer durables, insurance and services.

The underlying economy is strong, India is a developing country with growing needs, and some sectors will remain resilient despite temporary political uncertainty and investor concerns.

The new government will increase capital expenditure, better than normal monsoon is expected to support agriculture, crude oil prices have come down which will support inflation.

There are many good things that can be absorbed by different sectors, and they will shine in FY25.

Do you think there will be a complete change in policy initiatives?
Not at all, while the general perception is that the BJP has failed in the elections, we have to consider some important factors. It is almost unheard of for any government to be elected for a third consecutive term in any part of the world.

The election result is surprising because our expectations and the media hype were very high, but if you look at the political landscape it is not surprising.

Coalition governments do a great job, pushing forward policies and reforms and bringing about change. I don’t think it will be any different this time.

We will see that power will be decentralised from the BJP, collective decisions will be taken, but it would be hasty to assume that decisions will not be taken.

I doubt whether the current policies that are working in the country’s favour will be put on hold.

Is there a need to reshuffle the portfolio amid political/reform uncertainty?
In the last decade we have seen some sectors growing rapidly in the economy. Infra, auto, PSU and defence have done very well due to the focus of the current government.

With the changes on the political front, it can be expected that some of these sectors will not grow as much as before. I think one should be a little cautious and exit sectors that have given adequate returns.

If there is uncertainty, it is always advisable to allocate money to defensive sectors like consumer goods, utilities and healthcare.

This does not mean that we will not see growth in infrastructure in the country, but we can take a cautious approach. Analyze the policy of the new administration, their focus and then bet on a particular sector.

(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)