Kudva believes the next major bullish phase for Indian markets is likely to begin after September 2025, following a period of digestion after two strong years of rally.
He highlights the role of mid and small-cap stocks in driving growth, the resilience of domestic liquidity, and potential FII inflows as global dynamics shift.
Kudva also discusses key sectors to watch and explains why he views the current phase as a stock picker’s market. Edited Excerpts –
Q) Markets are struggling in the first month of 2H2025. What is limiting the upside?A) I think we need to take a step back and look at the big picture. We are coming off two very good years (Mar’23 to Sep’24) in the broader equity market.What we are going through in 2025 is best described as a period of digestion or consolidation. In the interim, the markets have navigated elections, multiple wars, and most recently, the “Trump tantrums”.
Against this backdrop, the markets are doing just okay. That said, there is no major reason for any immediate large upside as earnings growth has been good but is already well priced in.Also, there is little fear of a large downside given the strong domestic liquidity and under-weight FII positioning.Q) The June quarter season has just begun – how do you see India Inc. faring in this quarter? Which sectors should investors watch out for?A) Typically, Q1 is a weaker quarter compared to Q4, so the first thing is we should avoid QoQ comparisons. Last year, Q1 was all about elections, followed by a low-growth Q2.
This year, I expect both Q1 and Q2—and maybe even Q3—to enjoy a low base effect and deliver reasonably good growth overall.
As has been the trend over the last few years, the action is likely to be in the mid and small-cap space, while large caps will provide more sedate returns overall.
Q) Everyone says it is a stock pickers’ market now and the days of easy money are over. What are your views?A) As mentioned earlier, we are now in a rangebound market after a bullish phase that lasted 18-24 months until Sep’24. This rangebound phase typically lasts around 12 months, so the next leg may start only after Sep’25 or so.
Of course, this is just conjecture based on historical patterns. In this environment, only a few sectors will do well. One needs to identify these outperforming sectors and allocate to quality stocks during corrective phases.
Q) SIP crossed ₹27,000 crore for the first time in June. What is boosting the momentum?A) The SIP momentum picked up post-Covid and has been continuing ever since. I believe the new generation of investors understands that significant wealth creation is possible only in equity markets.
Many investors who started small in 2021 have done very well over the last four years and are consistently increasing their exposure.
This looks like a secular trend, and we should not be surprised if SIP flows continue to rise and the numbers become truly staggering over the next decade.
Q) FIIs are still not back in India completely. Are valuations or earnings acting as headwinds?A) I think it’s neither valuations nor growth. FIIs have been under-weight on India over the last few years primarily because they’ve been doing so well in their home countries, especially with the Mag7 and big tech companies performing exceedingly well.
There hasn’t been a pressing reason for them to step out, particularly when most global markets struggled post-Covid. India, of course, has been an exception with strong growth.
However, in terms of allocations, we’re still bucketed with other Emerging Markets, and overall allocations to this segment were probably reduced. Also, the US dollar has been very strong during this period.
It’s only now, post-Trump, that the dollar weakness has begun, and as a result, emerging markets—including India—are starting to pick up.
If this trend continues, we can expect FII allocations to India and other EMs to increase materially, something we’ve started to see in recent months.
Q) Which sectors are likely to drive momentum in 2H2025?A) My focus has always been on growth. I believe sectors like Pharma, Auto Components, Defence, Power, Data Centres, EPC, Value Retail, and Wealth Management are likely to perform well.
Q) Any sectors you think are overheated?A) We’ve seen a reasonable correction across the board over the last six months, so a lot of froth has been cleared out. I wouldn’t say valuations are cheap, but at the same time, they’re not overheated either—broadly speaking.
Of course, on a stock-specific basis, there will always be pockets of over-valuation, but overall, I don’t see much overheating at this point.
Q) Despite recent regulatory steps, retail investors still account for 91% of the losses in the derivatives segment. What more can SEBI do to protect them?A) I believe the responsibility doesn’t lie solely with SEBI but with the entire ecosystem. Investor education is crucial because, ultimately, if people are inclined to gamble, they’ll find ways to do so outside of markets as well.
That said, I’m not in favour of over-regulation as long as there’s no misconduct, because excessive regulations can also hurt genuine players. It’s a delicate balance, and SEBI has been doing an exemplary job in keeping our markets clean. That focus should continue.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
