Expert View | Budget 2025 is a single event in broad cycle; Market rebounds reward patient investors: Vaibhav Porwal

Expert View: Indian stock market participants await the announcements of the Union Budget 2025 by the end of this week amid India Inc.'s hopes of high capex allocation and tax cuts for the middle class while sustaining fiscal consolidation. Budget decisions have historically helped shape the market's sector trends based on government policy changes and financial plans.

Ahead of the Union Budget on February 1, Vaibhav Porwal, Co-founder of Dezerv, said in an interview with Mint's Nikita Prasad that he expects Budget 2025 will likely trigger short-lived market swings and volatility in the near term. The D-Street expert believes investors must avoid knee-jerk reactions and follow a conservative approach by staying disciplined to reap the results of a market rebound.

Edited excerpts from the interview:

Q. The Indian stock market has been trading lower week by week amid heightened volatility due to weak corporate earnings and foreign capital outflows. What kind of impact do you see on Nifty 50 and Sensex from Budget policy announcements?

A. Recent dips in the Nifty 50 and Sensex stem from various factors like muted earnings, a slowdown in GDP growth, and global uncertainties tied to President Trump’s trade policies. In the short term, we believe the markets will remain volatile, especially in the run-up to the Union Budget. While budget speculations and temporary announcements can create short-lived volatility, we should wait till the Budget to ascertain the impact.

Also Read: Union Budget 2025: Top 10 moves that could benefit every middle-class homebuyer

Q. The Indian economy has strong base macroeconomic fundamentals, but what are the key challenges the RBI will need to tackle in 2025? What are your major expectations from Union Budget 2025, especially for market participants?

A. Despite the strong fundamentals, the RBI faces three key challenges in 2025. First, inflation remains high and has crossed the RBI's upper limit of six per cent. Second, the ~3.5 per cent depreciation of the Rupee in a single quarter has intensified currency pressures.  Lastly, interest rates have not been reduced as expected. 

Due to high inflation, the RBI delayed a rate cut and kept the repo rate unchanged at 6.5 per cent in the December MPC meeting. This has impacted the market sentiment. However, interest rates are expected to be cut in the next MPC meeting in February.

There is growing anticipation around policy and tax decisions in the next budget. Any changes, especially in taxes, will impact the markets in the short term. However, this is speculation, and we should wait for the actual impact of the Budget.

Also Read: Expert View | Pro-growth policies, clarity on long-term taxation in Budget 2025 to stabilize markets: Narinder Wadhwa
 

Q. Amid the ongoing Q3FY25 earnings season, which sectors are you most positive about, especially ahead of the budget session? Going forward, what are the stocks/sectors investors should focus on in 2025 to eye maximum returns?

The large-cap segment is appealing, given that large-cap indices are trading at an 11 per cent discount to historical valuations. This valuation offers a potential entry point for investors seeking stability and growth. Valuations in the mid- and small-cap segments seem more stretched—sectors like defence, capital goods, and infrastructure have seen significant PE expansion, making them comparatively pricier. 

Although there are pockets of opportunities, investors should be cautious, given the high valuations. Investors should focus on value-oriented stocks with fundamentals that can weather short-term market swings.

Q. How do you think US President Donald Trump's tariff policies and other announcements will impact India's financial markets? Will it trigger further FII/FPI outflows from Indian markets?

US President Donald Trump’s second term signals a potential trade war, with India possibly in the crosshairs given its trade surplus. Proposed 100 per cent tariffs on BRICS nations and ongoing friction over high import duties could weigh on BFSI, IT, and pharmaceutical sectors reliant on US markets. 

Also Read: US Fed to cut interest rates again? Donald Trump seeks lower rates by raising energy production; Here’s what experts say

Yet even Trump wouldn’t favour an overly strong dollar, as it would hurt US exports and undermine his push for domestic manufacturing. If these measures materialise, FII/FPI outflows may accelerate amid uncertainty. Ultimately, we must wait and see the actual sanctions and policies before reacting.

Q. How should investors navigate the current market volatility? Is there more downtrend expected in the coming months?

The Nifty 100 has declined ~9 per cent in the last 30 days and ~13 per cent since its all-time high in September 2024. Given weaker corporate earnings and global uncertainties, we expect volatility to persist for the next two to three months. However, India’s long-term macroeconomic picture remains favourable, making the current correction a chance to reassess and possibly strengthen your portfolio.

We believe the valuations in the large-cap space are still reasonable and are expected to yield good returns over the next three years. For investors with steady income streams, this is a good time to benefit from Systematic Investment Plans (SIPs). 

Market corrections allow you to accumulate more units at lower prices, lowering your average purchase cost. If you have small cash reserves (<5 per cent of your total equity portfolio), it is a good time to deploy money now. Here are a few more pointers for investors:

Stay invested: While the current correction may feel significant, especially compared to the post-COVID rally, market rebounds have historically rewarded patient investors. Disciplined investors who stay invested during downturns benefit when markets recover.

Rely on active management: Every market cycle has new leaders, and as per our analysis, new cycle winners always differ from previous cycle winners. You can identify and capitalize on emerging opportunities through active management and adapt your portfolio to changing market dynamics.

Focus on asset allocation: Maintain your strategic asset allocation across equity, fixed income, and gold. This is a good time to re-assess your asset allocation and capitalize on market opportunities. During market volatility, diversification is your first line of defence.

Also Read: Week Ahead: Budget 2025, US Fed Policy, Q3 Results, F&O expiry, auto sales among key market triggers for Nifty
 

Q. What should be the Budget-day trading strategy for investors on February 1, 2025? What are the key levels of Sensex and Nifty 50 that investors should watch out for, and which stocks do you recommend for Budget Day?

Budget announcements often trigger short-lived market swings, so a conservative approach is wise. Rather than chasing immediate gains, maintain a watchful stance and let key announcements unfold before reallocating your portfolio. The Budget is a single event in a broader market cycle—avoid knee-jerk reactions, stay disciplined, and align decisions with your overall investment strategy rather than short-term headlines.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts, consider individual risk tolerance, and conduct thorough research before making investment decisions, as market conditions can change rapidly, and individual circumstances may vary.