Earnings growth will rebound; overweight on financials, consumption, pharma, says Harshad Borawake of Mirae Asset

Expert view on markets: Harshad Borawake, the head of research and fund manager at Mirae Asset Investment Managers (India), says amid current volatility in the Indian stock market, one should stick to the diversified asset allocation and continue to invest through regular investment plans like SIPs. In an interview with Mint, Borawake shared his views on the Indian stock market, sectors he is positive about and key risks for the market. Here are the edited excerpts of the interview:

What is your short-term view on the Indian stock market? What are the key risks that investors should not overlook?

So far, 2025 has been eventful, with key risks like geopolitics, policy actions (tariffs), and earnings downgrades playing out.

However, India’s macro setup augurs well with GDP growth ahead of other economies, supported by (a) RBI actions to ease liquidity, (b) fiscal discipline with pivot from capex to support consumption and (c) lower oil prices.

Now, regarding outlook, ongoing Q4FY25 results have been weak, as expected, but have not disappointed overall.

In our view, the earnings weakness is more cyclical, and we expect earnings growth to come back, led by a likely normal monsoon, rural areas doing well, the upcoming festive season, and the implementation of the 8th pay commission next year.

From the risk point of view, while India stands out positively, one should watch out for weakness in the global growth led by tariff issues, which could spill over to some sectors in India.

How to make money in this market? What should be our investment strategy?

Markets in 2025 have been volatile. The Nifty 50 is up nearly 5 per cent this year, but in between, it has seen two falls of 8 per cent and 9 per cent and two instances of a rise of 8 per cent and 14 per cent.

Vladimir Lenin's quote summarises the current market: "There are decades where nothing happens, and there are weeks where decades happen.”

So clearly, volatility is at a heightened level, but investors should treat volatility as an opportunity rather than as a risk. One should continue to stick to the diversified asset allocation based on the individual risk profile and continue to invest through regular investment plans like SIPs.

Our strategy, irrespective of the market sentiments, is to invest in quality companies up to a reasonable valuation, run by competent management and hold them for the long term.

At a portfolio level, we typically follow a bottom-up stock selection approach and also follow a barbell approach, where at one end we invest in high-quality businesses and at the other end also participate in “deep in value” businesses.

Have Q4 earnings been better than the expectations? What are the key trends that you observe?

While the results season is not yet over, as said earlier, the Q4FY25 earnings are weak, but largely on expected lines.

From the results so far, outperformance is seen in banks and downstream oil companies.

The key trends were (1) Rural India looking up, but urban still soft leading to overall weak volume growth for consumer companies, (2) focus on cost control, (3) asset quality largely strong, but weak credit growth for banks and (4) US lead weakness in IT services companies.

What sectors are on your radar for generating alpha?

Given the uncertain global macro setup, it may not be wise to take a top-down approach at the current juncture and better to focus on bottom-up ideas.

One must use this opportunity to accumulate good quality companies at reasonable valuations.

Export outlook remains uncertain on account of global geopolitical issues, while continuing to remain more constructive on domestic companies, also helped by the commodity price cool-off.

Our current key overweight sectors include financials, consumption and pharma.

Can the RBI cut rates in June? What could be the overall magnitude of rate reductions in the current cycle?

RBI, in the last few months, have taken multiple actions to ease liquidity in the system and has also cut rates by 50 basis points so far (in February 2025 and April 2025). 

While the RBI has now turned accommodative, like any central bank, the RBI’s future action will be a function of evolving economic indicators like inflation and GDP growth projections.

With inflation in control (4-4.5 per cent) and a weak global growth setup (world GDP cut to more than 3 per cent now), we believe there is room for further rate cuts with expectations of 25- 50 bps in the upcoming policy and overall 100 bps in 2025. 

Early rate reductions should help transmit rates into the system when India needs to push growth and government policies that take advantage of China+1.

When do you expect a rate cut from the US Fed? Can a delayed rate reduction affect emerging markets like India negatively?

The US Fed, with a dilemma of whether to address inflation or growth, has stated that it is in "wait and watch" mode. 

While the Fed's official projections suggest two rate cuts in 2025, it may refrain from cutting rates, especially in the context of the large fiscal tax cuts bill proposed by the Trump administration. 

Today, the USD itself is under strain for various reasons, and hence, unlike in the past, the spillovers of the Fed's policy on emerging markets are likely to be lower and may not negatively impact India.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.