The economy has slowed down and earnings growth in some sectors is slowing down consequentially. Some sectors might take time to digest current valuations while those that look more reasonably valued and also have reasonable earnings growth can fare better in markets in 2025. 2025 will therefore likely be a year of relative delta driving alpha.
Within domestic cyclicals, more resilient businesses which continue to generate earnings delta – albeit at a slower pace than before, will likely be sought after more than those which exhibit more cyclical characteristics.
Shridatta believes better run large banks will pull ahead of the pack even more in 2025 in market share and quality of books, which can drive their stock prices at a healthy clip. These will going forward likely be seen as quality compounders and get valued by markets appropriately.
He sees similar traits playing out in the healthcare theme – where bottom up stock selection will play a big role in identifying quality franchises that don’t have some of the uncertainties impacting others.
Select industrials and the power ecosystem continue to look attractive.
He has reduced exposure to autos which have slowed down after rapid growth over last couple of years – a shift of gears he characterizes as only a pause in the growth journey.
Among global cyclicals, he is looking closely at IT which can benefit if we do see a growth spurt in the US from policy measures of the incoming Trump Administration. He continues to be wary of metals and chemicals as China might likely continue to put deflationary pressure with its aggressive market posture.
His dark horse pick for 2025 is consumer staples – a sector that’s universally shunned, which may just see some positives driven by Government focus turning towards boosting consumption in the lower income groups which are facing the brunt of income stagnation coupled with rising costs.