Asset Allocation: ETMarkets Smart Talk: Have Rs 10 lakh to invest in FY25? Cyclicals, commodities & capex themes are looking promising: Somnath Mukherjee

As we step into FY25 – how do you see markets in the next financial year? Do you see a double-digit return?
Somnath Mukherjee: Markets are pricing in multiple best-case scenarios currently – a)Current Ruling Party’s victory in elections, b)inflation continuing on its downward trajectory, c)US rate cuts sometime during the year, and d)conflict zones remaining non-disruptive.By definition, these are the “best case scenarios”, one or more of them may disappoint. In this case, markets could be disappointed disproportionately. Risks and rewards are quite evenly balanced right now.

In terms of earnings – how do you see India Inc. faring in FY25. P/E multiple has expanded but there is a lot of catch-up which earnings have to do. Do you see earnings recovery in FY25 especially in the small & midcaps space?
Somnath Mukherjee: Earnings growth has come off significantly, and small and mid (SMID) stocks a bit more than large caps now.

With consumption remaining anemic and public capex being the primary driver of the economy, broad-based earnings momentum is likely to be slower than what we have seen in the last 2-3 years.

If someone with a high-risk profile plans to deploy Rs 10 Lakh in FY25 – what would be the ideal sectoral allocation in his/her equity portfolio?
Somnath Mukherjee: Cyclicals, commodities, capex are the most promising segments in the market.

How are you looking for Gold in the next FY?
Somnath Mukherjee: Positive. There has been a structural shift in Gold, with the war in Ukraine and US sanctions on Russia. Central Bank purchases of Gold have gone up significantly.

Additionally, it seems global interest rates have passed the “high inflation test”, ie, they are structurally lower than the 1980/90s, even when confronted with high inflation. Plus, it remains a great USD hedge for Indian investors.

What would be the ideal asset allocation looking at the domestic and global factors in the next financial year assuming someone is in the age bracket of 30-40 years?
Somnath Mukherjee: Depends on risk appetite and life goals. There is no single solution that fits all bills.FIIs took a back seat in FY24 – how do you see foreign investors positioning themselves in FY25? What is holding them back?
Somnath Mukherjee: FIIs finished strong, with large inflows (~$3.6bn) in March. India’s a structural growth story, so expect FII flows to remain quite good. The real breakout will be start of US rates cuts.

There is a lot of talk around valuations which have turned slightly expensive compared to peers. Is that something that is a sign of caution for investors in the new FY?
Somnath Mukherjee: India’s always traded at a premium to its peers. Of late, the premium has expanded, but so has India’s relative growth rates.

While valuations are indeed stretched, it is not a relative value against EM peers that is a worry. Catch up of earnings is a bigger worry for investors in the new FY.

Note: The interviewee is the Chief Investment Officer & Senior Managing Partner – Products & Research, ASK Private Wealth. The views and opinions expressed in this interview are personal. Recipient(s) before acting on any information herein should make their own investigation and seek appropriate advice.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)