rewrite this title and make it good for SEOScale down expectations from stock market in 2025: Dhiraj Relli, HDFC Securities

Arguing that a sustainable upmove in Sensex will require FPIs to turn positive on India in the new year, Dhiraj Relli, MD & CEO, HDFC Securities, says investors will do well to scale down their expectations of returns from the equity market.

“Although we may see a 10% upside from here in the early part of the year, the year 2025 may not end with such gains unless the geopolitical situation eases materially and Trump acts rationally and in a broad-minded way so that the Sino-US tensions do not derail the global growth trajectory,” Relli says.

Edited excerpts from a chat on investing in 2025:The market’s mood from bullish to bearish changes very quickly as we saw during the peak in September-end and then the rally that followed from the November lows. Now as the market seems to be range-bound, how bullish or bearish are you?We remain cautious on the Indian markets at this point given that the corporate earnings have yet to pick up momentum, so that the valuations seem reasonable. Economic growth has weakened to a 7-quarter low while inflation is yet to show sustainable signs of coming under control. Risk appetite of FPIs seems to oscillate based on global events and expectations. A sustainable upmove will require FPIs to turn positive on India although local flows have remained steady off late.Also read | Sensex & Nifty in 2025: Predictions, targets, must-have stocks for the new yearSensex ended 2024 with 8% return despite all the negative impact of geopolitical troubles, weak earnings in H1FY25 and fractured mandate in Lok Sabha elections. Would you expect double-digit gains in 2025?While we could see a good start for 2025 aided by Trump inauguration and the Union Budget, we could run into headwinds later depending on how much of Trump rhetoric is translated into action. Inflation may prove to be difficult to control more due to supply side issues than demand. Global growth revival may also be pushed back. Although we may see a 10% upside from here in the early part of the year, the year 2025 may not end with such gains unless the geopolitical situation eases materially and Trump acts rationally and in a broad-minded way so that the Sino-US tensions do not derail the global growth trajectory. Investors will do well to scale down their expectations of returns from the equity market.

A lot of investors have already tweaked their portfolios amid signals that the government’s capex spend is picking up and that the Q3 earnings season will surprise on the upside. Do you predict earnings recovery in the new year?Going by the high frequency data for Oct and Nov, we think that Q3 numbers may not surprise investors positively. Govt Capex is slated to rise in H2, but the signs so far are muted. Hopes of earnings recovery are now postponed to Q4.

Following the Maharashtra election results, we have noticed a fresh wave of buying in capex-related themes and PSU stocks. Do you think that PSUs and capex themes will once again shine in 2025?Both the themes have enough revenue visibility, but their current valuations don’t leave enough room for upside, barring a few companies. PSU stocks need to surprise on execution and margin improvement fronts to justify the current valuations. Capex-related companies have run up ahead of time and any disappointment in delivery for a quarter may provide investors with an opportunity to enter these stocks.

New year is also the time for making new beginnings. If one were to start afresh with Rs 10 lakh capital in hand, how would you suggest someone with a moderate risk appetite to go about it? What should be the asset allocation profile?Investors with moderate risk appetite would do well to start with an allocation of 45:35:10:10 – Equities: Fixed Income: Gold: Cash and later raise the equity exposure out of cash and fixed income as and when the markets correct. Equity exposure may be taken partially through mutual funds.

Which are the top themes that you are bullish on for 2025 and why?Capex-related or industrials is one theme that could do well for the next couple of years given the importance to infrastructure spending and the Make In India initiatives. However, one will have to time the entry well to have an adequate margin of safety. Largecap IT stocks could prove to be defensive bets in a year when volatility is expected to rise. Large private banks could do well if the economy comes out of a growth slowdown soon given their attractive valuations. Pharmaceuticals and healthcare is another space that may provide a safe haven, provided one times the entry well.

What are the key risk factors that can derail the bull run we are in currently as every dip is being bought?Continued growth slowdown and persistently high inflation globally and locally remain the two most important risk factors that can derail the upmove in the markets. For this, we need to closely monitor the developments on the geopolitical front and supply disruptions, global rate cut trends, pace of quantitative tightening, Trump’s policies on making America great again (by imposing tariffs, cutting taxes, clamping down on immigration, encourage oil and gas extraction and roll back environmental regulations etc) and climatic changes impacting agriculture production.