Can you elaborate more on the earnings growth projections?
June 2025 quarter (Q1-FY26) is expected to witness subdued earnings growth of 5-7 per cent. Q4-FY25 earning weakness is expected to have a bearing on the first quarter. Among others, auto, FMCG, and financials have witnessed a continuation of the weakness in demand and credit growth in Q4FY25.
Sectors with significant US exports could also show a benign growth outlook due to policy uncertainty. Things are likely to stabilise once the tariffs are announced and impacts understood. The later part of the second half should ideally witness the resumption of overall growth sentiment.
We are optimistic about domestic-facing sectors that could benefit from consumer spending. The impact of increased disposable income due to income tax relaxation and lower food inflation should help consumption.
Are you repositioning portfolios in light of valuations and macro uncertainties?
While repositioning the portfolio, our investment strategy is selecting stocks with a bottom-up approach. While large-caps have outperformed the mid-and-small caps in H1CY25, we are optimistic that there are pockets in the mid-and small-cap space that offer earnings growth potential with superior return on equity (ROEs) and wealth creation potential. Our strategy is defined around our expectations of the macroeconomic variables and factors that affect individual stocks and sectors.
Which sectors carry the highest weightage in your investment portfolio?
With the easing of the monetary policy, we are optimistic on financials. The RBI's November 2023 reversal hike in risk weights for bank loans to non-banking financial companies (NBFCs) and cash reserve ratio (CRR) cut by 100 basis points (bps) will give banks better visibility on liquidity conditions. We also like to select NBFCs and asset management companies (AMCs). They, therefore, carry the largest weight in our portfolio.
In the near-term, banks may face pressure from slow credit offtake and net interest margin (NIM) contraction due to loan repricing. However, the deposit deficit is expected to ease, asset quality should improve, and credit costs may decline in H2FY26. That said, banks do remain well-positioned, supported by strong capital, better liability management, and strategic portfolio shifts. We also favour the IT sector, where select segments offer strong growth and attractive valuations.
How should one approach asset allocation if interest rates begin to rise again?
Our investment approach focuses on high-quality accrual assets with strong cash flow visibility and G-Secs to benefit from yield movements. Given the current steepening yield curve (5Y–15Y), we’re allocating to low-duration, high-liquidity instruments—mainly G-Secs and liquid AAA corporate bonds for better accrual.
This strategy helps minimise short-term losses, with the flexibility to shift to higher duration when rates peak, aiming to outperform fixed income benchmarks. We also have selective exposure to annuity-based InVITs for their stable cash flows.
Is diversification to international markets advisable given the current market scenario?
We anticipate valuation challenges if earnings growth remains tepid and advise investors to focus on sectors/stocks that are more domestic-facing or at least, without any significant exposure toward markets where the tariff impact could be severe or where geopolitical impact could be more direct.
However, investors who are evaluating their diversification strategy, could park in funds offering technology and (artificial intelligence) AI focused exposure. That said, we believe India has been one of the best-performing markets in the world, especially among emerging markets, over the last decade.
What’s the outlook for equity flows? Could debt attract more investor interest in the coming quarters?
Equity flows from foreign investors saw a reversal in recent months, supported by India's attractive valuations and currency stability. Retail participation has surged since Covid, with over ₹10 trillion flowing into equity mutual funds and Demat accounts rising from 4 crore to 19.4 crore between 2020 and 2025.
That said, there is still a portion of investors who would prefer a blend of savings with adequate returns beating the generalised inflation and hence, there would still be significant inflows to the debt market. On the rate regime, as of now the rate cycle still has much room to ease with the understanding that our current growth is undershooting the potential growth rate, inflation is expected to remain benign, fiscal policy is inclined towards targeted consolidation, and other domestic macroeconomic indicators are stable.
Therefore, debt could be an option for investors who would want to diversify with a medium to long timeline view. In the near term, yields have risen amid global uncertainties and expectations of an RBI pause, though a 25 bps cut remains possible depending on evolving data.
 "ABHISHEK DAS, chief investment officer, Pramerica Life Insurance")