Economy strong but equities face near-term challenges: ICICI Pru MF

Year 2025 will be ‘A tale of two halves’ wherein the global economy is on a downhill and Indian economy is continuing its upward trend, ICICI Prudential Mutual Fund said in its 2025 outlook.

 

While globally countries face challenges like ballooning debt, complex growth-inflation dynamics, supply chain disturbances and geo-political tensions, India’s fundamental attributes are strong and sustainable, given the clean balance sheet of government, corporates and households, strong economic growth, rising capital expenditure, unwavering domestic demand and fiscal prudence, it said.

 

However, the equity market faces near-term challenges like high valuations and moderate earnings.

 

“Hence, a combination of asset allocation strategies and equity schemes with flexibility to move across market capitalisation and sectors may help deliver risk-adjusted returns,” the fund house said.

 

The equity market in 2025 faces several positive and negative triggers. While heightened geo-political tensions, changes in US trade policies and high valuations can be a drag on the equity market, comeback of foreign portfolio investors (FPIs) into the domestic market, government's focus on capital expenditure and resilient domestic consumption can deliver a positive boost.

 

The recent correction in the equity market, according to the asset manager, has eased multiples to an extent but valuations still remain high, especially in the midcap and smallcap space.

 

“We prefer largecaps over mid and smallcap schemes due to reasonable valuations plus possibility of FPIs making a comeback which may result in outperformance,” it said.

 

According to the company’s valuation indicator, largecap valuation has eased in the recent months and is now in the 'neutral' zone.

 

The yearly outlook stated that in the current situation, investors should prefer hybrid schemes.

 

“Strong fundamentals coupled with high valuations creates a strong case for investing in hybrid and multi asset allocation schemes,” it said.