In this scenario, investors could expect returns around that figure, making 2025 a relatively stable but not volatile year for the markets.
Holland anticipated a slowdown in India’s economy, with a possible decline in interest rates. While the banking sector could see some improvement by 2025, he remained uncertain about which specific sectors and companies would perform well.
He expressed optimism that government spending would increase, suggesting that the capital goods sector would benefit. He noted that while contract awards might not immediately impact profits, share prices in this sector often rise when contracts are secured. If he were to focus on one sector, it would be capital goods.
This is the verbatim transcript of the interview.
Q: In some of the conventional sectors, growth rates have slowed down, earnings growth, etc. has slowed down and it’s not trivial, the pace at which earnings growth has come off for the large conventional sectors. So let us talk non-conventional, non-traditional. Solar, for example, is one. These are newer industries where there is opportunity, but again, valuations are a bit of a problem. Your thoughts for some of these newer nontraditional areas, and what is the top idea, top theme?
A: That is a difficult one, wherever you look, there is a valuation problem. It could be because it’s getting earnings downgrades, and therefore some of those traditional sectors you are talking about are being hurt because of that, because the top line and margins are under severe pressure. Some of the new-age technology stocks and new kind of areas that you are seeing that is where the growth is. But the valuations are also quite rich. So you are going to call between looking for value in the traditional sectors, but knowing that the downgrades are coming, and not really wanting to kind of pay up for some of the high growth areas.
The areas that we talked about, the themes we talked about before, were obviously electronic manufacturing and I think that is a great one. I would pay up for these companies because I think there is a three to five-year runway of which they could make huge amounts of top-line and bottom-line of profitability. So that is one area we would continue to look at.
However, with solar, the prices are coming down I am just not sure it is an area that I get more excited about. I can see it in the electronic manufacturing sector, but I am just not so keen on the kind of solar part of the business in terms of the pricing pressures I expect will happen going forward.
Read Here | What is the Nifty target for 2025? Jefferies shares its top picks
Q: The market here has had a good run, but now, as we enter the New Year, the question is what will take it higher? Which is the sector that can have leadership? FMCG has been in the doldrums, can banks take on that mantle? Would it continue to be some of these capex and manufacturing-related stocks what is your sense?
A: My feeling is, that the market is hoping for this extra kind of Santa Claus rally, FIIs will kind of pack up and go off on their holiday soon. Therefore the tendency is don’t sell in this month, because usually you get a reasonable return. Then, of course, going into January, you will have all the kinds of expectations for the budget, notwithstanding that obviously President Trump will obviously take administration at that time as well. So I think volatility is going to be a little bit more in January. But what I would say is that I don’t think the banking sector, as much as I have been a bull on it, can really take the mantle at the moment. GDP growth is way below expectations and I know that the forecast is for around 6.8% but I think it’s going to be near to 6% so there’s a lot of pain to come yet.
I would hope that the government starts spending, so I would go, probably go for the capital goods. I would probably look at that sector as being where you can see at least some contracts being awarded, doesn’t necessarily mean that it’s going to hit the bottom line, but usually share prices move in this sector when they get awarded contracts. If I was thinking of any one sector to lead, it would be capital goods.
Read Here | Record revenues, subdued profits: Here’s IATA’s 2025 outlook for airline industry
Q: A couple of themes that you have been very bullish on, and two come to mind, particularly since we are in this seasonally strong period for them, aviation, as well as hotels. What are the stocks you play out there? In aviation, you have two of them, one is the leader and one is the one that is struggling for survival. However, there could be something on the plate, because of the industry does well. So would you stick to the leader or would you look at the second player? Also in the hotel industry, Indian Hotels, out of nowhere, I think in the last 45 days, the stock is up 15% of their about your view?
A: I would play the leader in the airline space because I think that is where I think the more kind of revenue and bottom line profitability is going to come over the next over the next one year, that is an easy call to make. I think fuel prices will come down as well which will be an extra kind of tailwind for the airline industry as well.
In terms of hotels, just getting a room anywhere, I was seeing some prices for go for Christmas, and they are just unbelievably high. The hotel industry and I think there are few IPOs coming as well. So, the theme in terms of experiences and travel is not going away and one of the things that gives me even more kind of positivity in the sector is that foreign tourists have truly still got to pick up. So if that were to be the case, then this would obviously be an extra kind of revenue line for all the hotel companies across India. So that is one extra boost I do not think the market’s kind of pencilling into their earnings forecast, but I think that is coming as well.
Read Here | Indian Hotels to open 25-30 new properties in FY25, with 112 more in the pipeline: CEO Puneet Chhatwal
Q: Going back to the bigger projection for 2025 are you expecting it to be a more range bound year for the market because of the growth concerns that you mentioned and walk us through, what would your top bets be? What would you strictly avoid because there is still a big debate out there on urban slowdown, perhaps FMCG is not moving higher, so on and so forth?
A: It is a tricky one, because, if I just think about India, from where we are, then obviously I am expecting the economy to slow quite quickly. We could see interest rates fall as well. We should be good for the banks at some point of time in 2025, but the one thing that is holding me back from saying, which sectors and which companies are going to do well is what is going to happen when President-elect Trump comes in. I think that if we are all saying one narrative at the moment, it’s going to be higher tariffs, and lower tax rates, lower tax rates in the US could also mean lower tax rates in Europe as well. This means that flows will not necessarily come to emerging markets. So I think it’s going to be not an index play. I think it’s going to be individual themes, which we talked about a few of them, which will continue to play out. I don’t see earnings growing more than 10% next year, and if it’s 10% then that’s the kind of return you would expect for the market. So it’s not going to be a bumpy year in terms of in terms of the markets, and that’s the best-case scenario.
Also Read | IKIGAI Asset Manager highlights contra sectors to watch in 2025
