Expert view: Indian stock market may stay volatile, says Avinash Pathak of LKP Sec; recommends 7 stocks to buy now

Expert view on markets: Avinash Pathak, Institutional Equity Research Analyst at LKP Securities, believes the Indian stock market may remain volatile due to global macro headwinds, trade tensions, and weak Q4FY25 earnings. However, strong domestic SIP inflows continue to support market sentiment. In an interview with Mint, Pathak shared his views on key headwinds for markets and stocks to buy now for the long term.

Edited excerpts:

What are the key headwinds that investors must not ignore?

In the medium term, Indian markets will likely remain volatile due to global macro headwinds, trade tensions, and weak Q4FY25 earnings.

However, strong domestic SIP inflows continue to support market sentiment.

With a relatively light political calendar in CY25, the government has greater scope to implement focused policy measures.

Strategic spending to boost urban consumption, an expected recovery in corporate earnings, and a low market base together offer a cushion for Indian equities.

Key risks include the amplified impact of global tariff wars, a strengthening US dollar, slower-than-anticipated private capex deployment by Indian corporates, and a potential near-term slowdown in domestic economic growth.

How should investors invest in a volatile market?

We believe staying disciplined with your investments makes a difference during uncertain times like these.

Spreading out allocations—whether through SIPs or investing in phases—helps manage volatility and smooth out the impact of market swings.

Sticking with fundamentally strong, less cyclical businesses with steady earnings and solid balance sheets is important.

Keeping your portfolio diversified and aligned to your risk appetite, along with some professional guidance, can go a long way in navigating short-term uncertainty while staying on track for long-term goals.

Do you see any pockets of opportunity at this juncture?

Yes, the market has been quite volatile lately, but that doesn’t mean there aren’t opportunities.

In fact, these environments often yield interesting ideas, especially for investors willing to look beyond the short-term noise.

We see pockets of strength in areas like consumption, infrastructure, and even some financials.

It is really about being selective and focusing on companies with strong fundamentals. Volatility can actually be an advantage if you know where to look.

What is your view on the Indian economy for the current financial year?

For FY26, I believe India’s domestic economic activity is firmly on a recovery path, (Manufacturing PMI for March 2025 at 58.1 versus 56.3 in February 2025) underpinned by robust consumption demand and solid macroeconomic fundamentals.

The government’s continued push towards consumption and capital expenditure (budgeted ₹10.18 lakh crore), coupled with a resilient services sector, is expected to drive growth momentum.

Measures announced in the Union Budget 2025–26 are well-aligned to boost domestic consumption while maintaining a commitment to fiscal consolidation (Budgeted target of 4.9 per cent of GDP)—an approach that could enhance India’s sovereign ratings and attract greater capital inflows.

Effective fiscal and monetary policy coordination will be crucial to achieving a more stable growth-inflation balance.

While the recent US tariff announcements have added to global uncertainty, India’s progress on the disinflation front provides the RBI with the flexibility to continue supporting growth as needed.

⁠What is your outlook for consumption sectors? What stocks are you positive about from this segment?

Domestic consumption presents a tale of two halves — rural demand shows resilience while urban consumption continues to lag.

Rising housing costs, elevated food inflation, and a deceleration in wage growth have primarily driven the slowdown in urban areas.

However, urban consumers will likely find some respite with easing food inflation and recent tax relief measures announced in the Union Budget.

This improving sentiment could bode well for consumption-oriented stocks. Names such as Mrs. Bectors Food Specialities, Jyothy Labs, Crompton Greaves Consumer Electricals, Havells, and Blue Star stand out as potential beneficiaries of a recovery in urban demand.

Do you expect another 75-100 bps cut by the RBI in the current cycle?

Inflation appears to be well within the RBI’s comfort zone, registering at 3.34 per cent in March 2025. However, external uncertainties such as a global trade/ tariffs war, geopolitical tensions, and a potential global economic slowdown could pose moderate but notable risks to inflation and currency stability.

On the positive side, a sharp correction in vegetable and crude oil prices and expectations of a favourable monsoon support a benign inflation outlook for now.

In response to recent tariff developments, the RBI has revised its GDP growth forecast downward from 6.7 per cent to 6.5 per cent, reflecting growing concerns over the broader economic environment.

Nevertheless, India’s economy remains largely domestic-driven, which should help cushion the impact of weaker external demand, even if exports face some pressure.

Considering these factors and assuming macroeconomic conditions remain stable, two rate cuts—each of 25 basis points—appear likely in the near term.

What is your outlook for Q4 earnings?

The Q4FY24 earnings season presents a mixed outlook across sectors. Strong performances are expected in pharma and hospitality, while sectors like metals, banking, and IT services face headwinds from macroeconomic and industry-specific challenges. 

The pharma sector is expected to deliver strong sales growth, driven by domestic formulations and US speciality products and expanding EBITDA margins. 

In contrast, diagnostics companies may see moderate growth due to seasonality and a weaker acute season. While the outlook remains positive for pharma, it is mixed for diagnostics, with tariff uncertainty being a key monitorable. 

The hospitality sector is set to maintain strong momentum in Q4FY25, supported by robust occupancy, higher room rates, healthy MICE activity, weddings, and domestic tourism, resulting in a positive outlook. 

While defence and transmission drive order inflows in the capital goods space, a broader sector revival remains elusive. 

Margins are expected to be mixed due to rising commodity prices, leading to a cautious sector view. 

The metals sector is likely to report weak performance in Q4FY24, as falling steel prices and higher input costs overshadow improvements in domestic demand. 

A sharp decline in net sales realization is expected, making the outlook negative. 

IT services companies may experience muted revenue growth due to fewer working days and softening demand. EBIT margins are expected to be mixed, and guidance remains conservative amid macro uncertainties. 

The banking sector is projected to report modest earnings growth, with steady loan growth, slower deposit growth, pressure on net interest margins, and elevated credit costs in certain retail segments, contributing to a generally weak outlook.

Suggest some stock ideas for the long term.

In large cap, one can look at Mahindra and Mahindra (M&M), SBI, Muthoot Finance and Britannia Industries, while in mid-cap, we are positive on Crompton Greaves Consumer Electricals, Mrs. Bectors Food Specialities and AU Small Finance Bank.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of the expert, 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.