Expert Speak: Expect earnings growth at 16%-18% in FY26, stay invested, suggests Gopinath Natarajan of Geojit | Stock Market News

Expert Speak: In a recent conversation with Mint, Gopinath Natarajan, CEO Asset Management at Geojit Financial Services, discussed the challenges of predicting when foreign portfolio investors (FPIs) will resume buying. He noted that with India’s increasing share in emerging market indices and the recent correction making Indian markets more attractive, he believes India will continue to be a key focus for FPIs in their emerging market allocations.

Natarajan also provided insights on earnings growth, the upcoming Reserve Bank of India (RBI) monetary policy, potential IPOs, as well as sectors to consider and those to avoid.

Edited excerpts:

Given the volatile global economic climate and a number of domestic factors, should we expect the market to consolidate within a broad range in the near future?

India’s earnings grew >20% over the last 3 years and FY 25 seems to be the year of earnings consolidation and our current valuations are reflecting the same. In the short to medium term there could be multiple factors, both global and domestic, that could result in some volatility but in the long run, stock markets tend to reflect the underlying earnings growth. We expect earnings to grow at 16%-18% in FY 26.

What is your final target for the Nifty 50 for 2024?

Over the last couple of months, the broader markets have seen some healthy correction with large cap index declining 10% and mid/small cap about 11-12%. While it is difficult to put target numbers, in the short term, we expect the market to be liquidity driven and react to key domestic (via Q3/Q4 earnings, economic growth, interest rates, union budget etc.) and global events (US trade policies, interest rates, $ strength etc.)

When do you expect the Foreign Portfolio Investments (FPIs) buying to begin?

Some of the key reasons for India to have witnessed foreign institutional investor (FII) selling pressure over the last few months were uncertainty over the US elections, premium valuation of Indian markets, Chinese market stimulus & slowing earnings momentum. With some of these events having played out, we have seen some moderation in FII selling. While it is difficult to predict when FPIs will start buying again, but with India’s growing EM index share & Indian markets now looking more attractive post the correction, we believe India will remain central to FPIs emerging market allocation.

Q2 GDP came below expectations, while inflation remains high. What could be the interest rate trajectory in India?

India’s GDP growth in Q2 FY25 came in below expectations mainly attributed to weaker manufacturing, mining contraction, and sluggish private consumption. We expect to see a stronger H2FY25 as Government presses the pedal on capex spend and rural recovery further gains pace. There has been a robust growth in Kharif food grain output and the outlook for Rabi crops is also quite upbeat. On the inflation front, if one were to look at the number excluding food inflation, we believe the core inflation is at comfortable levels. In this backdrop, it is unlikely that RBI would prefer to resort to a rate cut in a hurry. However, one can anticipate a possible CRR reduction to ease liquidity constraints, if needed, without fueling inflation.

This year has seen a lot of IPOs. What do you think of the most recent listings? Can the IPO momentum continue?

The amount raised from IPOs so far in this year has crossed ₹1.33 lac crore, which is the highest ever in Indian markets. Expensive valuation in the secondary market and excess liquidity with institutional investors have created strong demand for public issues this year. Importantly the quality of companies / businesses which have come for IPO have largely been quite good. This is also reflected in the post-listing performance of their stock prices. Out of the 75 IPOs that have come during the year, 59 of them have delivered positive returns wherein 26 of them have given returns of more than 50%.

With the robust performance coupled with adequate liquidity, we expect the momentum in the primary market to continue and reward high quality issuers.

What challenges do you think the Indian stock markets will face in 2025?

Few key risks could be Geo-political, continued FPI outflows / weaker rupee and lower than expected corporate earnings. But having said that, none of these are new to the Indian markets and we have shown great resilience in the past to such events. Despite these risks, India will still be one of the fastest growing large economies in the world.

Which sectors do you think will catch investors’ attention in 2025?

We believe the Government’s continued focus on driving make in India, will continue to take center stage in 2025 as well. There has been a sharp revival in the power sector capex across generation, transmission and distribution. We expect power sector to do well and within this we are quite bullish on the renewable theme as it is not only sustainable but also economically competitive as compared to conventional power. During the course of 2025, we expect concerns on NPAs and deposits mobilization to ease, which should benefit lending businesses like Banks and NBFCs.

What strategy would you suggest to navigate the current market volatility?

Our own internal research has shown that over the last 20 years if one had missed even 20 best trading days, their returns would have diminished by nearly 50%! The best strategy for investors in India is to ‘Invest and stay invested’.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.