Expert view: Economic slowdown seems more cyclical than structural, says Harshad Borawake of Mirae Asset

Expert view: Harshad Borawake, the head of research and fund manager at Mirae Asset Investment Managers (India), believes the Indian economy's slowdown may be cyclical rather than structural. In an interview with Mint, Borawake said that measures to stimulate consumption and some relief to the middle class could be expected in Budget 2025 due to the recent urban slowdown.

Edited excerpts:

What are the top factors dragging the market down? When do you expect the market to stabilise?

Apart from earlier periods of strong returns and relatively higher valuation, the recent market correction can be attributed to urban consumption weakness, falling government capex, difficult geopolitics, earnings slowdown, and sharp FII (foreign institutional investors) selling.

We believe these factors are more transitory, and any decisive turnaround in some of the indicators should lead to market stabilization.

Union Budget can calm sentiments if the market is convinced of government capex revival. Additionally, the commencement of RBI’s rate-cut cycle, signs of consumption uptick, softening of US protectionism rhetoric, and a more dovish US Fed should prop markets.

What are your expectations from Budget 2025? What measures can please the market?

We believe market positioning seems quite weak, going into the Union Budget, as market expectations from the Budget are quite tempered in the light of low expected growth in expenditure and limited visibility of any large measures being announced.

Given the recent urban slowdown, measures to stimulate consumption and some relief for the middle class can also be expected.

Revival in government capex will be a key metric to watch out for. Expect constructive commentary and budgetary allocation here.

Equity markets should be pleased by a stimulative budget, which should be forgiving of a modest fiscal stretch, given that the FY25 fiscal deficit can be lower than the budgeted.

Do you see signs of the Indian economy slowing down? What it means for investors?

The slowdown seems more cyclical than structural. Some key, high-frequency indicators (HFIs) show signs of fatigue, with 2QFY25 GDP hitting a seven-quarter low of 5.4 per cent.

However, not everything is flashing red—notably, rural consumption demand seems to be on the mend, as several corporates have confirmed in the past two earnings seasons.

Market corrections during slowdowns provide investment opportunities in fundamentally strong stocks at attractive valuations.

By adopting a disciplined approach and leveraging opportunities created by the slowdown, investors can position their portfolios for future growth once the economic environment stabilises.

Mid and small-caps have seen deep correction in the recent past. Is there more pain in the offing?

Indian Nifty Midcap 100 and Nifty Smallcap 100 saw a nearly 12 per cent correction from Sep’24. While the SMID indices correction remains in line with large caps, there are many instances of deeper correction in the segment at stock-specific levels.

As stated earlier, the correction could be short-lived if we see a reversal in some consumption trends.

While India’s SMID is a compelling medium—to long-term story regarding returns versus large caps, the valuation at which one buys is also important. So, at the current juncture, one can enter small or midcap from a five-year perspective to have a decent experience.

What should be our equity investment strategy? Which sectors should we look at?

Investors should invest based on their risk profile and continue allocating via SIPs. A balanced equity investment strategy is crucial amid ongoing market corrections and slower earnings growth. 

One can look at investing in Hybrid funds, which offer rebalancing features as the markets move. From a static portfolio allocation perspective, we can currently focus on large-cap stocks, allocating more than 60-65 per cent of equity investments to them, as they offer stability. 

Mid-caps and small-caps can occupy smaller portions, favouring quality stocks with robust fundamentals. In terms of sectors, we are currently overweight on private financials, healthcare, consumption, etc.

How should investors brace for the Donald Trump factor?

It's difficult to assess the impact given the large uncertainty over the likely policy actions. India is generally seen on the right side of US policies and after the initial effects of protective announcements. India can potentially emerge as a better place among emerging markets. 

India can benefit from the China+1 narrative. However, in the near term, as investors, we will have to continually assess the degree of doability of the announcements and keep balancing rhetoric and action. The bottom line for investors would be to stick to their asset allocation based on their respective risk profiles.

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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.