Speaking only as an objective, unbiased investor, one can’t blame the President-elect for believing there was divine intervention in his surviving the assassination attempt; ergo, the man has divine purpose, is on a mission to eliminate wasteful spending, fix what ails the country, revive growth and preserve the U.S. dollar reserve currency status. Trump has recruited a brilliant innovator as a key advisor in Elon Musk, who will bring new approaches, technology and creative (and disruptive) thinking to the White House.
Trump has signaled pro-growth policies, including tax cuts and elimination of wasteful spending and deregulation. Corporate titans, innovators and entrepreneurs are seeming to be taking over the reins on policy and strategy from the politicians and bureaucrats, and that’s an exciting development to witness.
In the backdrop, the dominant theme of our lifetimes has been technology repeatedly changing the way we live our life, in the process generating strong earnings and wealth. AI will Move at 5X the Speed of the Internet with 3X the Impact are the words of John Chambers, former CEO of Cisco, on the impact AI, robotics and related technologies will unleash in coming months.
So what does all this mean for India and our markets?
The tech wave will benefit India, via tech services, tech innovation, foreign investment, productivity enhancement and growth. India is quietly optimistic about working with the Trump government. In light of cabinet appointments and P.M. Modi’s friendship with Trump, there will be significant opportunities to enhance ties between the two largest democracies, that may lead to strengthening of India’s geo-political positioning.
With Trump, the India, US, Japan, Israel, Australia and parts of South Asia nexus, Quad will strengthen. India’s problematic relationship with Russia in the West’s eyes may also prove easier to navigate. Secretary of State selection Marco Rubio is on record stating that India should be treated by the US like allies.
We believe Trump’s energy policies will keep crude prices in check. While power demand will surge, Trump’s plans to drill aggressively – environment concerns notwithstanding – will act as a direct check on energy and transportation inflation. China’s transition to EV and contracting demand will remain an additional burden on crude oil prices. Lower crude will have widespread, secondary multiplier benefits.
Calls to look through vegetable inflation have surfaced in India, and the pressure on the RBI to cut rates will mount. Expectations are that the RBI will provide a monetary policy boost early next year. Globally, central banks are launching a rate cutting cycle and G-7 countries are being driven to pro-growth policies following weak incumbent performances in elections.
The recent slowdown in Indian earnings growth and consumption is largely related to the slowdown in public investment. While the consumer seems stretched, the effect is exacerbated by the government spending slowing down. With admirable fiscal discipline in reigning in the deficit, India is well-positioned for lower inflation, stronger financials and continued growth, while possessing the levers to up the fiscal policy boost if necessary in 2025. We expect government spending on capex to pick up next year, alongside global demand and tech to drive earnings in a bifurcating market. A significant share of the market has delivered admirable growth. India Inc is broadening, deepening, and bifurcating. A selective approach appears to be the prudent choice.
The recent volatility and market correction is being driven by FIs who have been aggressive sellers. However, with large IPOs mostly out of the picture, FI selling abating, DIs will exert a greater influence on markets. For DIs, Indian equities have delivered meaningful wealth creation. The DI perspective continues that the India story has been resilient, the current correction is cyclical, and the fundamentals for growth remain in place. The cult of equity investment will only grow in India.
On earnings, roughly half our universe (735/1502 companies) delivered top line growth of 12% y-o-y or better. An impressive 477, or almost a third of companies, delivered 20%+ sales growth y-o-y, and a stellar almost 300 companies delivered 30% growth. Top line growth was not an issue in the recent earnings data.
Of companies with 15% growth, roughly 33 companies in the large cap space delivered strong top line growth. In contrast, there were 107 midcaps (cap 20k to 100k cr) and 253 small caps (cap 2500 to 20k cr). If an investor wants growth, it’s seeming to be in mid caps, small caps and micro caps. The sell off in mid & small cap has been huge, with some being down 40 – 60%. To us it seems like a bifurcating market – a meaningful share of the broader equities market has been delivering strong growth. An equally meaningful cross-section will be challenged. This is the time when selection of managers and stocks plays a meaningful part in driving returns. You have to sweat a little more to drive portfolio returns.
In light of the significant shift in U.S. outlook, a pro-growth government with fresh thinking, DOGE, an AI wave that will likely accelerate in 2025, a bear market in over 50% of the mid and smaller caps universe, it’s time to be opportunistic and selectively bullish. The strong fundamentals of the India story remaining intact, alongside a potentially strengthening geo-political position.
As hope floats again, it’s good to remember what Warren Buffett famously said ‘the stock market is a device for transferring money from the impatient to the patient’.
Hang in there !
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
