Expert view on markets: Tejas Gutka, a fund manager at Electrum Portfolio Managers, points out that liquidity in the Indian stock market is strong, but earnings growth is levelling off after a period of rapid expansion. Gutka said revival in consumer spending and an increase in private investments are the key factors that can move the market. In an interview with Mint, Gutka shared his views on earnings revival, sectors that can lead the next leg of a rally, among other things. Here are edited excerpts of the interview:
What is your short-term outlook for the market? Can Nifty hit a fresh high by Diwali 2025?
The market is currently facing several challenges, including uncertainty around tariffs and global supply chains, a slowdown in corporate earnings, weak consumer spending, and reduced investment from foreign investors.
However, positive factors, such as falling interest rates, potential tax reforms, and strong domestic liquidity, are also supporting the market.
Given these mixed signals, the market has been relatively flat recently. A significant move will depend on how these factors evolve. Over the long term, markets are generally driven by corporate earnings and liquidity.
While liquidity is strong, earnings growth is levelling off after a period of rapid expansion. As a firm, we focus on picking individual stocks rather than predicting overall market levels.
Therefore, we don’t forecast where the Nifty will be at a specific time. The market’s crystal ball is always cloudy.
What are the key triggers that can move the market?
On the international front, a clearer picture of tariffs and their effect on the global economy, as well as geopolitical stability, is a key factor that could influence the market.
Domestically, a few things could serve as triggers. A revival in consumer spending and an increase in private investments are among the most important.
The markets will also be affected by the future pace of investment from domestic sources, especially since returns have not been as strong over the last year.
Why are FPIs selling Indian stocks? What can bring them back?
It is difficult to explain the behaviour of a third party. FPI is a large and diversified group of investors with differing objectives and investment horizons, making it even more difficult to explain their actions.
However, at a broad level, the selling could be due to a few factors:
(i) Profit booking: FPIs may be selling to secure profits after India’s strong performance over the past few years.
(ii) Portfolio re-balancing: They might adjust their portfolios by moving money out of India and into other markets that offer more attractive valuations.
In our view, long-term investors are drawn to any market for three reasons: a stable macroeconomic environment, strong corporate earnings growth, and relative valuations.
As these factors align for India, we could see a resumption of foreign investor inflows. Ultimately, capital flows where value, growth, and stability are found.
What do the current macro indicators suggest about earnings revival? Is earnings revival near?
Current economic indicators are indeed weak, affected by uncertainty over trade policies, slower business investment, and weather-related issues.
However, it is important to remember that these indicators often reflect past performance, while corporate earnings are a look into the future.
Therefore, there might not be a strong correlation between the current macro environment and earnings revival.
Moreover, despite the challenging macro environment, recent company results showed modest growth in sales and earnings.
Whether this growth accelerates will depend on key factors like the outcome of tariff negotiations and the full effect of domestic policies, such as interest rate cuts and new tax rules.
While the exact timing of a turnaround is difficult to predict, we remain optimistic about the prospects for earnings revival.
On a lighter note, earnings growth is a relay race; the baton is always being passed to the next half/year.
What sectors can lead the next leg of a rally? Do you see any opportunity in the IT sector?
While no one can predict the future with certainty, we believe that domestic-focused sectors are well-positioned for the next phase of growth.
The previous rally was led by export-oriented sectors like IT and Pharma, and domestic sectors driven by business investment.
Going forward, if recent fiscal and monetary policies are successful, we could see sectors that have underperformed, such as consumer goods and banking, lead the next rally.
We see opportunities in the IT sector. We hold some investments in the sector because we believe it is attractively valued and has strong long-term prospects.
After income tax relief in the Budget and proposed GST reforms, do you think a further rate cut by the RBI will revive the consumption cycle in India?
History suggests that putting more money into the hands of the consumer has usually led to a revival in consumption. We would like to believe that this time will be no different.
In addition to the tax and interest rate cuts, we are also optimistic that the expected pay commission hike would add to the consumption kitty. After all, an economy’s best fuel is a full wallet.
What should be our equity investment strategy at this juncture?
The most important investment strategy is to avoid trying to predict the market’s direction and instead focus on the growth potential of individual businesses.
For those who do not invest directly in stocks, the best approach is to maintain a diversified asset allocation, rebalance periodically, and invest systematically. Ultimately, discipline beats intelligence in this business.
Read all market-related news here
Read more stories by Nishant Kumar
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
