For Indian market, base case of around 13% annual return seen in 2025: Rajeev Agarwal

Rajeev Agarwal, Fund Manager & Managing Partner, Doordarshi India Fund, says the policy measures will drive to a very large extent what happens either on the upside or the downside. Markets may not tell the full story because there is a story about some stocks that have risen a lot in 2024 and maybe they will take a little bit of a backseat while some others that have been punished in 2024 may have a better opportunity as we go into 2025. It may be a lot more stock-specific rather than market-specific. But from an Indian stock perspective, the base case of around 13% annual return is quite reasonable.

What exactly are you expecting in terms of the market dynamics – globally as well as back home? What’s in store for global markets next year, after they have been navigating through this election cycle, lots of unusual market dynamics as well?
Rajeev Agarwal: For 2025, clearly the one big event is Trump taking over the reins as the US President. A lot of policy measures are expected to be introduced by Trump very quickly. Clearly, he has the people that he wanted and many of those will get confirmed. That is going to be the one big event which will drive a lot of the markets.

Beyond that, as we get some sort of visibility on both the Mid-east crisis as well as the Ukraine-Russia crisis. Coming back to India, we have to see if some of the current pullback that has happened on the financial side, persists and also how long the problems on the MFI and the banking side will persist because that will be a critical driver in terms of how the growth opportunity in India will look like.

Given the way this year has panned out, we have not seen double-digit gains as far as India is concerned and the expectations are moderate for next year. Given the earnings momentum you talked about, what is the realistic estimate of returns when it comes to 2025? Are we likely to see those average 12% to 13% gains? Can it be less? Can it be more?
Rajeev Agarwal: I would think that for an economy like India and for the shareholders, one should expect around 13% which has been the long-term average for Indian equities to be the base case and then very recently we started hearing chatter about whether the income tax rate will be cut and so on.

So, the policy measures will drive to a very large extent what happens either on the upside or the downside. I also feel that markets may not tell the full story because there is a story about some stocks that have really risen a lot in 2024 and maybe they will take a little bit of a backseat while some others that have been punished in 2024 may have a better opportunity as we go into 2025. It may be a lot more stock-specific rather than market-specific.

But from an Indian stock perspective, the base case of around 13% annual return is quite reasonable.

The big event heading into January is going to be Trump taking over the US administration. How do you expect that to pan out for our Indian markets? IT could be in focus. Where are you pencilling in some growth? Which sectors will do well? Which sectors could take a little bit of a back foot in 2025?
Rajeev Agarwal: Our fund believes that it is the domestic sectors which will be driving the growth of India and when we look at domestic, capex will continue. The government has been very focused on ensuring that the capital expenditure continues. Infrastructure should continue to do well. Defence should continue to do well. I believe that because of all of these big-ticket items, we will see decent momentum in the banking and finance space, so those are some of the sectors that I believe should do reasonably well.

Now, whether they are already priced in terms of the stock performance is a question that we have to address one by one. In terms of the export sector, the markets and some of the stocks are not sensing enough volatility as Trump takes over because Trump is much more focused on ensuring that there are enough tariffs and the US jobs are protected and stuff like that. It may create headwinds for some of the export-oriented sectors, especially if his policy measures impact Indian companies and that may very well happen or that may be a bargaining point he might use to ensure that US goods get a much more freer hand as they come into India.