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Equity Outlook - Jan 2025

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22 views7 pages

Equity Outlook - Jan 2025

Uploaded by

lokesh chauhan
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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EQUITY OUTLOOK

JANUARY 2025

By Shreyash Devalkar
Head - Equity

2025 : A YEAR OF STOCK PICKING - CAPITALIZING ON


GROWTH WHILE MANAGING VALUATIONS
2024: A YEAR OF HITS AND MISSES

2024 has ended and it’s been quite an eventful year for equities.
Looking back, this marks the ninth consecutive year of positive returns,
translating to a 13% CAGR. The year unfolded as we anticipated,
starting strong with the general elections, the budget, rate cut
expectations, and finally the US elections. Markets reached all-time
highs month after month, leading to elevated valuations. There was a
robust domestic demand from mutual funds, with investors pouring
money into them. On the downside, in the last three months, there were
strong FII outflows leading to a decline in equities.

Market sentiment is influenced by earnings growth and absolute


valuations. While overall market valuations are high, sectors with
relatively lower earnings growth, such as FMCG, lenders, energy, and
metals, are not as expensive compared to their pre-COVID valuations.
Conversely, sectors with higher earnings growth, like real estate,
pharma, auto, capital goods, and many B2B businesses with lower free
cash flows, are at higher valuations than their pre-COVID levels. The
high-valuation sectors may consolidate in the near term if they lack new
earnings growth drivers. Despite this, we continue to find opportunities
across the market and believe that individual stock selection in this
environment is more important.

2
OUTLOOK FOR 2025
Over the long term, market returns tend to align with nominal
GDP growth, and this trend will continue. Following significant
outperformance in sectors like Real Estate, Pharma, IT, Auto, and
Capital Goods, these sectors may consolidate in the near term. In
the past three years, mid and small caps have often been seen as
expensive but have shown superior growth compared to large
caps, leading to their outperformance.

However, due to the substantial valuation gap caused by the


underperformance of large caps relative to mid and small caps, it
is now crucial to focus on absolute growth versus absolute
valuations in both segments. The markets are likely to become
more stock specific.

EARNINGS OUTLOOK
Companies have seen superior earnings growth led by margin
improvement, strong recovery post Covid, along with government
spend and policy actions. We believe, factors like margin
improvement may not continue for long, however continuation of
prudent capital allocation policy by government to boost both
capex and consumption, may drive a recovery in earnings.

3
CAPEX OUTLOOK

Among all sectors, the capital goods sector has demonstrated


strong earnings growth across various macroeconomic scenarios
over the past three years. This has led to its outperformance and
overvaluation, which peaked around May 2024. Following this
peak, the sector began to consolidate. Nonetheless, the relative
growth in the capital goods sector remains superior to other
sectors, while some segments of the consumption part of economy
have deteriorated recently.

Consequently, after the consolidation, markets have shifted focus


back to the capital goods sector. The demand is being driven by
renewable power and the associated need to strengthen power
transmission and distribution. Additionally, there has been an
improvement in defense sector order announcements in recent
months, and growth in electronics manufacturing services remains
strong. Overall, select capex and PSU companies may continue
performing well in 2025.

% %

4
THEMES TO LOOK OUT FOR IN 2025?
Markets are gravitating towards companies with clear earnings
growth visibility and a lower likelihood of significant earnings
downgrades. Accordingly, the themes in 2025 are likely to be split
into two halves.

For the first half of 2025, key themes to watch include sectors such
as Information Technology, Pharma, Quick Commerce, Capital Market
beneficiaries, Travel/Tourism, Renewable Capex, Power Transmission
& Distribution, EMS, Defense, and select Auto companies with new
product launches on the horizon. However, many of these sectors
currently have high valuations.

By the second half of 2025, markets may shift focus to potential


triggers in underperforming sectors such as Lenders, FMCG, and IT.

5
RISKS TO VIEW
Rising geopolitical tensions hinder the free flow of goods, services,
capital, and manpower, distorting demand and supply dynamics and
leading to imported inflation and a weak currency. This type of inflation,
driven by factors such as commodity prices and tariffs, poses a
significant risk. However, when it comes to inflation in domestic
commodities like food or services, investors can often find opportunities
among the beneficiaries.

Markets may be volatile but do not get swayed from your goals and
invest for long term. The past few years have shown us that sentiments
can flip in a flash, and we have seen this exactly from COVID days.
Diversify your portfolio wisely.

6
5
DISCLAIMER
Data as of 31st Dec, 2024

Source: Axis MF Research, Bloomberg

Sector(s)/ Stock(s)/ Issuer(s) mentioned above are for the purpose of disclosure of the
portfolio of the Scheme(s) and should not be construed as recommendation.

Past performance may or may not be sustained in the future.

Axis Bank Ltd. is not liable or responsible for any loss or shortfall resulting from the
operation of the scheme.

Axis AMC is not guaranteeing / recommending returns on any investments.

This video represents the views of Axis Asset Management Co. Ltd. and must not be
taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual
Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or
associates shall be liable for any damages including lost revenue or lost profits that may
arise from the use of the information contained herein. No representation or warranty
is made as to the accuracy, completeness or fairness of the information and opinions
contained herein. The AMC reserves the right to make modifications and alterations to
this statement as may be required from time to time.

Axis Bank Ltd. is not liable or responsible for any loss or shortfall resulting from the
operation of the scheme.

Mutual Fund Investments are subject to market risks, read all scheme
related documents carefully.

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