 "markets, Sensex, nifty")
Indian equities are witnessing a significant shift in investment trends, moving away from momentum-driven strategies toward high-growth, quality companies, according to PGIM India Mutual Fund. Amid stretched valuations and increased market scrutiny, analysts advise focusing on portfolios with a strong domestic orientation.
Market rotation: From momentum to quality
Markets have regained the ground lost in the first half of the year. Between April 2023 and June 2024, low-quality, poor-growth stocks in the NSE 500 universe surprisingly led the rally, delivering 84 per cent returns, while high-quality names lagged slightly behind at 51 per cent, PGIM India Mutual Fund data shows.
In the same period, benchmark Nifty and Sensex rose 38 per cent and 34 per cent, respectively.
However, since June 2024, there has been a clear reversal. Investors appear to be moving away from frothy, momentum-driven trades and returning to companies with strong fundamentals. High-quality, high-growth companies have outperformed with 5 per cent gains, while low-quality, poor-growth peers have posted -3 per cent returns during the same period.
Data range: April 1, 2023 to May 31, 2024, June 1 2024 to June 30, 2025 | Source: Bloomberg, PGIM AMC Internal Analysis | Data as on June 30, 2025
Large-caps reasonably valued; SMIDs frothy
PGIM India MF notes that large-cap stocks are reasonably valued, while mid-cap and small-cap segments appear expensive. The firm remains cautious on the SMID (small-and-midcap) space, highlighting visible froth in select pockets and prefers large-caps. However, it also believes that high-growth, good-quality companies within the SMID space could offer compelling long-term opportunities for discerning investors.
Market outlook
PGIM India MF remains optimistic on markets from a medium-to-long-term perspective, driven by strong economic growth. It sees India in a relatively resilient position among the global peers, as the growth may be moderate, but is not showing signs of structural stress. As per the latest economic outlook by national sources, Morgan Stanley, July 2025, global growth is projected at 2.9 per cent in 2025 and 2.7 per cent in 2026, below the historical (2000–19) average of 3.7 per cent. However, India’s growth is expected to be comparatively higher at 6.4 per cent in 2025 and 2026, according to data by national sources, Morgan Stanley, July 2025.
PGIM India MF reckons that India will continue to be among the fastest-growing economies in the years to come, despite the recent cut in growth forecasts. Inflation in India has also moderated, and the Reserve Bank of India (RBI) has cut rates accordingly.
In 2050, analysts project that the world’s five largest economies will be China, the US, India, Indonesia, and Germany (with Indonesia displacing Brazil and Russia among the list of largest emerging markets over this horizon), according to data by Goldman Sachs. If projections are extended to 2075, the world’s three largest economies are China, India, and the US, with India overtaking the US due to superior growth. Track Stock Market LIVE Updates
Investment Strategy: Domestic-focused and quality-led
Given the global uncertainty, ranging from volatile trade tariffs and geopolitical tensions to early signs of deglobalisation, PGIM India MF recommends a domestic-oriented portfolio strategy.
Domestic themes such as consumption, financials, and healthcare (ex-exports) offer a more structural and long-term growth visibility, as against sectors and stocks which are dependent on global events and/or policy. The investment management company expects high-growth and good quality buckets to outperform, while the low-growth/quality buckets are anticipated to underperform and give away the excesses that were built in FY24.
Sectorally, PGIM India MF is upbeat on consumer discretionary on the back of growth revival; Healthcare, as it seems fairly valued with high growth outlook, larger private sector lenders (reasonable valuations and growth), and Telecom (fair valuations with moderate growth). Conversely, it is ‘Underweight’ on Materials (low quality, weak growth) and Energy and Utility (heavily government dependent), and IT (uncertain demand environment).
