As CY24 wraps up, Indian markets have once again celebrated a year of gains with Nifty ending CY24 with a 9% gain, marking a historic milestone with 9 consecutive years of positive returns (1st time in history). The last three years have been remarkable, as domestic markets have navigated through global hurdles, all while facing significant selling from FIIs.
However, we can categorize 2024 as a year of two halves with solid returns in H1CY24 followed by no returns in H2CY24. Following a strong FY24, Q2FY25 experienced a slowdown in key macroeconomic indicators as real GDP growth fell sharply to 5.4% in 2QFY25, down from 8.2% YoY in FY24. In addition, high-frequency data (eg: GST collections, industrial activity, auto monthly numbers, power demand, PMI data etc.) have also slowed down significantly from previous highs.
We expect the early part of 2025 to be similar to 2HCY24, with the Indian market staying directionless until more clarity was to emerge on certain issues. We note three headwinds for the Indian market in the short term (1) expensive valuations across caps and sectors; (2) earnings reset—consensus estimates are still quite optimistic and (3) an unsettled global situation with possibility of a wide range of global policies and outcomes.
Key updates on the changes in portfolio during the last 3 months are given below:
Sell Calls
Full Exit:
- PSP Projects: The performance for the last 3-4 quarters has been lower than expectation and management guidance. B/S health has also been deteriorating due to increasing receivables. Further, promoter holding has been continuously reducing. Though we were confident on strong order inflows; poor performance w.r.t. profitability as well as deteriorating B/S were the major concerns.
Profit Booking/Partial Exit:
- D-Link India: The stock has given decent returns in the last 6 months and at CMP, we feel the company is fairly priced with limited upside in the short-term. Further, we have very little weightage due to continuous profit booking and hence, we aim to exit from the company in the coming months.
- HIL: The company for the last 1-2 years has been underperforming and the recovery still seems some time away. Rather than waiting for more time, we have decided to exit fully and shift to better opportunities.
Buy Calls
With major stocks witnessing decent correction in the quarter gone by, there were lot of options available for us w.r.t. addition of weight. However, considering the uncertain macro and high valuations across, we have utilized the cash that we had in portfolio to invest in companies which had corrected well and where we were fairly confident of results in the short-term i.e. next 1-2 quarters.
Increase in weight
- Dodla Dairy, Raymond Lifestyle, PDS, Hindalco and Saregama.
Further, we have added 2 new companies in our portfolio namely NMDC and Zee Entertainment.
Key updates on the changes in portfolio during the last 3 months are given below:
Sell Calls
Full Exit
- NAM-India: We had added the stock with an aim to get 10-15% returns in a short time and hence, we exited from the stock within the quarter only as our target price was achieved.
Partial Exit
- BPCL and ONGC: In order to increase our weight in other opportunities and not to be too overweight in the PSU theme, we trimmed down our weight in the above companies.
Buy Calls
New Addition
- NMDC: We have been positive on the mining theme since sometime and with completion of lean production period, next 6 months should be good in terms of production as well as price hikes. Further, in current market where valuations are high, we feel the stock provides decent risk-reward ratio.
Increase in Weight
- M&M: Consistently gaining market share and doing better than industry and hence, reduced partial stake from Maruti and added to M&M.
- Gail India: Decent Q2’25 results + the recent fall in share price provides a very attractive entry point.
2025 is surely going to be an interesting but challenging year for equity investors globally in general, and India in particular. We anticipate it to be a year of selective opportunities for Indian markets given slower growth, heightened valuations and global uncertainties. While markets are likely to be more stock specific, as far as sectors are concerned, we believe textile, pharma-healthcare, agriculture, cement, infrastructure and defence should do well.
Also, white it’s too early to discuss any impact of the HMPV virus which has spread in China, the broad understanding is that it’s a widely known virus and hence the containment of the same should not be very difficult. But clearly, it’s a wait and watch on that front.
Apart from that, the recently depreciating rupee and RBI stance on the interest rates softening will be the things to watch out for. While H1’25 has been lacklustre and one of the reasons is significantly reduced government capex and if that is picked in H2 that should give the desired push to the GDP and hence the investor’s interest would be back.
