Time's ripe for investors to raise equity exposure: Trideep Bhattacharya

The ongoing correction in the equity market may persist for a few more months as domestic and global headwinds will take time to abate, says TRIDEEP BHATTACHARYA, president and chief investment officer-equities, Edelweiss Mutual Fund (MF). In an interview with Abhishek Kumar, Bhattacharya says that recovery in corporate earnings growth will be key to the equity market’s trajectory in the second half of 2025. Edited excerpts:

 

The equity market is off to a gloomy start in 2025. How long do you expect the correction to persist? 

Equities face a combination of domestic and global challenges.

 

Firstly, December quarter earnings have been underwhelming, mirroring broader economic sluggishness typically seen in an election year.

 

Secondly, US President Donald Trump’s policy direction on tariffs and trade barriers has introduced additional macrovolatility. We anticipate this correction will persist through the first half of the ongoing calendar year as these factors unfold and find some resolution.

 

However, we expect the focus to shift back to ‘corporate earnings recovery’ in the second half. With economic and policy uncertainties abating, earnings recovery and growth could drive stability and set the tone for market direction heading into 2026.

 

What factors will dictate the market direction this year? 

The ‘politics of earnings’ will take centre stage as the Trump administration’s economic policies, including tariffs and trade barriers, reshape global trade dynamics.

 

The initial months of 2025 are likely to witness heightened volatility as markets react to these evolving measures. Domestically, the Union Budget will be a pivotal event, revealing the spending priorities of the Modi 3.0 government and setting the economic tone for the year.

 

The pace and extent of earnings recovery in 2025-26 (FY26) will likely dominate investor sentiment, particularly after subdued earnings growth in 2024-25 (FY25). Also, domestic investor participation, which has been robust and continues to offset foreign outflows, will remain a key factor.

 

How do you see the valuations? 

Overall, valuations of Indian equities appear ‘fair’, but they differ across market capitalisation segments. Largecap stocks are trading at about a 5 per cent discount to their 10-year historical average, offering a relatively attractive entry point for long-term investors.

 

Mid and smallcap stocks, on the other hand, are trading at a 15-25 per cent premium to their 10-year average valuations. However, these higher valuations are supported by superior earnings growth prospects compared to largecaps.

 

Valuations should always be viewed alongside earnings growth potential. In this context, a section of mid and smallcap stocks remains compelling despite their premiums.

 

Is it the right time for investors to raise equity allocation? 

In general, investors should align their equity allocation with their financial goals, risk tolerance, and market conditions. However, the recent correction provides long-term investors with an opportunity to increase exposure to equities on a staggered basis. We recommend portfolios that balance exposure across large, mid, and smallcap stocks.

 

Flexicap funds are ideal for conservative investors, offering the flexibility to navigate varying market conditions.

 

Multicap funds suit moderate-risk investors, providing diversified exposure across market capitalisations while balancing growth potential and risk.

 

Midcap funds are suitable for those with higher risk tolerance and a long-term horizon of five to 10 years, capitalising on the growth potential of midcap stocks.

 

This balanced approach allows investors to harness growth opportunities while managing risk effectively.

 

Which sectors are you bullish on? Any pockets of the market that investors should avoid? 

We maintain a positive outlook on manufacturing, information technology, real estate, and quality non-banking financial companies over the next two to three years.

 

Additionally, the consumption sector could emerge as a dark horse in 2025, driven by improving rural demand and targeted fiscal measures.

 

We expect India Inc’s earnings growth to be supported by a rebound in government capital expenditure (capex), the initiation of a private capex cycle, and the continuation of the real estate upcycle in FY26.

 

What are your expectations from the upcoming Budget? 

The Union Budget is expected to strike a balance between fiscal prudence and growth orientation, particularly after FY25 being a lost year for earnings.

 

The focus will likely be on sustained core capex growth of 8-10 per cent, income transfer schemes targeting low-income and rural households to drive rural recovery, incentives promoting the new income-tax regime for taxpayers, and new initiatives to boost agriculture and farmer incomes.

 

There could be adjustments to the export and import duty structure to mitigate risks from global trade tensions under the Trump administration.