2H2025 market returns may moderate, but India's long-term story intact: Abhiram Eleswarapu
After a strong start to 2025, Indian equities have shown signs of volatility, raising questions about the sustainability of returns in the second half of the year.
In this edition of ETMarkets Smart Talk, Abhiram Eleswarapu, Head of Equities at
BNP Paribas
, shares his insights on the market outlook, sector preferences, policy support, and valuation dynamics.
While he expects market returns to moderate in the near term, Eleswarapu remains optimistic about India's long-term growth story, underpinned by improving liquidity, policy tailwinds, and resilient domestic demand. Edited Excerpts –
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Q) After a stable May, the market turned volatile in June. 1H2025 has been robust with Nifty closing in the red in just 2 out of the last 5 months; however, we still underperformed EM peers in 2025. How do you see markets in the medium-to-long term?
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A) India outperformed considerably in 2024 which partly explains part of the underperformance this year. By around September last year, valuations were no longer inexpensive, earnings forecasts started seeing moderate cuts, FPI outflows followed, and system liquidity went into deficit - a trend which continued into 1Q2025.
However, since then, there have been several policy actions, first from the government via tax cuts, and then from the central bank via interest rate cuts and significant liquidity injections.
Globally, news around tariffs has eased somewhat. After the recent market rally, valuations for large caps are back to above their historical levels.
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But system liquidity is strong and economic indicators are improving. Therefore, even as we think market returns may moderate in 2H, we would remain positive.
Q) What is your take on the outcome of the MPC meeting in June. What is the trajectory you foresee for rates in 2025?
A) The central bank frontloaded policy action via interest rate and CRR cuts in June, demonstrating its commitment to stimulating growth, the results of which will likely play out through the rest of the year.
The shift in stance to neutral suggests that the RBI may hold off on further rate reductions for now unless significant growth headwinds emerge.
Inflation has notably decreased over the past few months, and core inflation appears to have already bottomed out.
Q) Which themes look attractive to you for the next 6-12 months amid trade war ears, strong dollar and possible scenario of falling interest rates? Is there any theme or sector where one should avoid fresh investments in the current environment? What is your call on the small & midcap space? Are they still trading at expensive valuations, and are large caps still a better play?
A) Our favored sectors include banking, IT services, telecommunications, discretionary consumption, and healthcare. We are more selective within mid- and small-cap stocks.
Q) The IMD has predicted a normal monsoon in 2025 – do you see this supporting consumption stocks/auto stocks?
A) A normal monsoon should further bolster the ongoing rural recovery. A healthy crop output and low inflation should boost farmers' disposable income, as long as realisations stay above their MSPs.
That said, autos and consumption companies also derive a considerable proportion of their revenue from urban India and their valuations have already re-rated considerably.
Q) Have you seen the recent trend of block deals taking place? Is that largely promoter selling? If yes, is that a worrying sign for stocks or is it business as usual?
A) It is quite normal for promoters or private equity players to part with some of their holdings in a rising market.
It is worth noting we had a lull in activity for most of the year so far due to unsupportive markets, and several of these sales may have been pending from earlier.
Q) How do you see flows – FIIs have recently turned positive on Indian markets, while DIIs have supported the rally. Do you see a reversal of flows into Indian markets? Many investors who stayed on the sidelines in the beginning of 2025 and are now experiencing FOMO as markets have seen a significant rally, but it is still down by about 5% from highs. Should they adopt staggered buying, keep cash or do a lump sum investment?
A) It is true that domestic flows, primarily from SIPs, have held up quite well. We have now seen at least two months of improving FPI inflows.
However, as mentioned earlier, valuations have also risen as a result since the bottom in 1Q. There it would be reasonable to expect more moderate returns going forward and to adopt a stock-specific approach.
Q) COVID cases are rising. Can this fuel hospital stocks, or should investors keep an eye on that theme? What are your views?
A) The initial feedback seems to be that the current cases are being driven by an Omicron subvariant, which typically causes only mild symptoms, and may not a catalyst for hospitals' earnings. That said, we continue to like those stocks from a long-term perspective.
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