Mr. Nimesh Chandan

Chief Investment Officer - Equity

Bajaj Finserv

Nimesh Chandan is an Investment Professional with 22 years of experience in investing in the Indian capital markets. He has an established track record in managing money and advising clients, both Domestic and International, Retail as well as Institutional.

Over the years, he has developed an investment process that generates alpha through informational, analytical as well as behavioural edge. He has been part of the mutual fund industry for 18 years where has managed products across market capitalisation and themes, and developed models on Sustainable Investing, Quant Investing and Asset Allocation..

Nimesh is a keen follower of Behavioural Finance and has been writing and presenting on the role of psychology in Investment Decision-making to the investment community. He has developed a set of processes and tools that help reduce one’s behavioural mistakes and understand the crowd or market behaviour.

Q1. As we begin 2025, how do you expect the year to unfold in comparison to 2024?

As we begin 2025, it's important to acknowledge the uncertainty inherent in predicting market outcomes at this stage. Event risks, including geopolitical developments and global economic shifts, remain key factors that could influence market performance. Domestically, the Union Budget will be a significant event, with potential measures to drive growth, investment, and consumption. However, it's too early to gauge the full impact until we see the details of these announcements.

The policy rate outlook will also play a pivotal role, with both the Reserve Bank of India (RBI) and global central banks navigating a balancing act between inflation control and economic growth. For now, views on how 2025 will compare to 2024 remain fluid and will solidify further after critical economic data is released in March, including corporate earnings and macroeconomic indicators. As always, our focus remains on navigating these uncertainties while identifying opportunities to deliver consistent, long-term value for our investors.

Q2. In this new year, one major event to watch for is the budget. What do you anticipate will be the key focus areas for the government this time?

The Union Budget this year is likely to focus on driving economic growth while maintaining fiscal discipline. The government may announce measures to boost rural development, agriculture, and infrastructure to support inclusive growth and job creation. Investments in sectors like renewable energy, manufacturing, and affordable housing could be prioritized to align with long-term economic goals. Additionally, tax reforms and incentives for individuals and businesses may aim to stimulate consumption and investment.

Another key area could be measures to encourage private sector participation and ease of doing business, particularly through PLI (Production Linked Incentive) schemes and MSME support. Continued emphasis on digital transformation, healthcare, and education is also expected, given their critical role in sustaining India's growth momentum. We will be closely analyzing these announcements for their potential impact on market sectors and corporate earnings to align our portfolios with emerging opportunities.

Q3. With the recent market correction in both BSE and Nifty, is this an opportunity for investors to enter the market or increase their existing positions?

The recent market correction in both BSE and Nifty can offer a good opportunity for investors, but the approach should be tailored to their risk-taking capacity and investment goals.

1. Low-Risk Investors: For conservative investors, market corrections can present opportunities to add positions in large-cap, stable companies with strong fundamentals and consistent earnings. These stocks tend to be less volatile and provide steady returns over time. Our large-cap fund with a focused strategy could be a suitable option here.

2. Moderate-Risk Investors: For investors with a moderate risk appetite, this market correction may offer opportunities to invest in a mix of large-cap and mid-cap stocks, which have growth potential but come with slightly higher volatility. Our large and mid cap fund with moat investing strategy and which invests a minimum of 35% in each of large and mid cap stocks, could help capture upside while managing risk.

3. High-Risk Investors: For those willing to take on more risk, market corrections can present attractive entry points into sectoral and thematic funds. We have 2 offerings in the sectoral and thematic space - consumption and healthcare fund, which could be suitable for high risk investors.

Key Factors to consider:

• Market Volatility: While corrections offer opportunities, markets can remain volatile in the short term. It's important to maintain a long-term perspective to avoid making decisions based on short-term market movements.

• Risk Diversification: It's essential to not concentrate investments in just one or two sectors. Diversified equity funds offer a balanced approach to manage risks while participating in market growth.

• Fundamental Analysis: Ensure that investments are being made in fundamentally strong stocks or sectors with robust growth potential, rather than being swayed solely by market price movements during the correction.

This market correction presents a good entry point for investors based on their risk profiles, and mutual funds offer an efficient way to diversify across sectors and market caps, aligning with both conservative and growth-oriented strategies.

Q4. Is the popularity of index and factor-based passive funds a passing trend, or do they represent a sustainable and enduring investment approach?

The popularity of index and factor-based passive funds is not a passing trend but rather represents a sustainable and enduring investment approach. The rationale behind this assertion can be framed within the following key points:

• Cost Efficiency
  Passive funds, whether index-based or factor-based, offer significantly lower expense ratios compared to actively managed funds. With the growing awareness of costs impacting long-term returns, investors gravitate toward these cost-efficient solutions, especially in efficient markets where alpha generation is challenging.

• Empirical Evidence on Factor Premiums
  Factor-based funds tap into well-documented sources of return, such as value, momentum, quality, size, and low volatility. These factors have been empirically proven to deliver risk-adjusted outperformance over the long term, aligning with evidence-based investment approaches.

• Diversification Benefits
  Index funds offer diversification across various sectors, commodities and styles, while factor funds allow targeted exposure to specific risk premiums, enhancing portfolio construction flexibility and resilience against individual stock or sector-specific risks.

The growing popularity of passive funds in India is driven by their structural advantages, including transparency, cost-effectiveness, and alignment with evolving investor preferences. These factors position them as an increasingly integral part of modern portfolio management in the country.

Q5. Which sectors are you currently underweight on and which ones are you bullish about for 2025, and what's driving your stance?

We are currently bullish in the Consumption, Healthcare and IT sectors.

Consumption: We are bullish on the consumption sector due to India’s strong domestic demand and demographic advantages. Rising disposable incomes, urbanization, and a growing middle class are driving robust demand for consumer goods and services. Additionally, government initiatives such as rural development programs, increased infrastructure spending, and welfare schemes are boosting rural consumption. Companies in this sector also benefit from improving supply chain efficiencies and innovations in e-commerce, further enhancing profitability and growth potential.

Healthcare: India's healthcare sector presents a compelling investment opportunity due to structural tailwinds such as rising health awareness, increasing healthcare spending, and an aging population. The sector benefits from both domestic and global demand for pharmaceutical products, medical devices, and healthcare services. Government policies like Ayushman Bharat and incentives for pharmaceutical manufacturing bolster the sector's prospects. Additionally, India's established position as a global pharmaceutical hub, supported by cost-efficient production and strong R&D capabilities, provides further upside for long-term growth.

IT: The IT sector remains a cornerstone of India’s economy, driven by its dominant position in global IT services and digital transformation trends. The sector benefits from a growing demand for cloud computing, AI, cybersecurity, and data analytics. Strong client spending in key geographies like the US and Europe supports revenue growth. Moreover, the sector is positioned to capitalize on emerging opportunities in platform-based solutions and digital engineering. The favourable currency movement and India’s cost advantage in talent acquisition also contribute to the sector's sustained profitability and growth.

Currently, we are underweight in the Utility, Metal and Financial Services sectors.

Q6. The New Year marks a time for fresh starts, and if someone were to begin anew with a capital of Rs 10 lakh, how would you recommend they proceed, particularly if they have a moderate risk appetite? What would be an ideal asset allocation strategy in this case?

For someone with a moderate risk appetite and a capital of ₹10 lakh, the focus should be on achieving a balance between growth and stability while aligning the investment strategy with their long-term goals, time horizon, and liquidity needs.

An ideal asset allocation for moderate risk would typically involve diversification across equity, debt, and other asset classes. Equity investments can provide growth potential, while fixed-income instruments offer stability and consistent returns. Depending on the individual's financial objectives, a portion could also be allocated to alternative assets like gold for added diversification and inflation hedging. Periodic reviews of the portfolio are crucial to ensure that it remains aligned with market conditions and personal goals, making this strategy adaptable and future-ready.

Mr. Rahul Goswami

Chief Investment Officer & Managing Director - Fixed Income India

Franklin Templeton Asset Management (India) Pvt. Ltd.

Rahul Goswami is Chief Investment Officer (CIO) and Managing Director at Franklin Templeton, Fixed Income in India. In this role, Rahul oversees the fixed income functions of the locally managed and distributed debt schemes of Franklin Templeton Mutual Fund. Rahul was previously the CIO - Fixed Income at ICICI Prudential Asset Management (I-Pru) and a key contributor to the success of I-Pru’s fixed income funds in India. Prior to I-Pru, he was a member of the Franklin Templeton India Fixed Income team, serving as portfolio manager from 2002 to 2004. Rahul also brings a wealth of experience from his time at well-regarded banks such as Standard Chartered Bank and UTI Bank. He has over 25 years’ experience in managing fixed income funds.

Rahul earned his M.B.A. and his bachelor’s degree in science from Bhopal University.

Q1. RBI announced a 50-basis-point reduction in the Cash Reserve Ratio (CRR). How do you assess the impact of this move, especially in the context of rising global geopolitical tensions and inflationary pressures?

The CRR reduction to 4.00% in two tranches of 25 bps each is a move towards restoring the ratio to pre-April 2022 levels. The move is aimed at releasing approximately ₹1.16 lakh crore of primary liquidity into the banking system. RBI in its latest policy meeting suggested that the systemic liquidity is expected to tighten due to tax outflows, increase in currency in circulation and volatility in capital flows. This reduction is to enable banks to continue credit to businesses and consumers, leading to increased investment and consumption. Domestically, inflation has remained mostly within the RBI tolerance band and the volatility exhibited by the headline inflation is due to intermittent spike in vegetable and food prices and to an extent due to unfavorable base effects. Thus, we believe that the additional supply of money is not expected to be inflationary but only to compensate for the reduced liquidity.

Q2. With the RBI maintaining the status quo on policy rates in this month’s MPC meeting, what is your outlook for the next monetary policy review? Is a rate cut on the cards in February? If so, what could be the magnitude of the cut?

Policy moves by the RBI are determined by growth-inflation dynamics and macro stability. While the latest growth outlook for full year FY25 was tempered by 60 bps to 6.6%^ (Source: RBI Monetary Policy Committee dated 6^th Dec 2024), it was largely a result of lower-than-expected GDP growth in the Q2FY25. Average real GDP growth, as per RBI projection, for the next four quarters i.e Q3FY25, Q4FY25, Q1FY26 and Q2FY26 are expected to be above 7%. At this juncture, it wants to remain prudent and practical and does not want the intermittent spike in headline inflation due to food prices volatility to spillover into other components of the inflation basket. It is difficult to predict the exact timing of rates cuts by the RBI, but we assess rate cuts in India to be shallow with two or three cuts of 25 bps each in CY 2025.

Q3. Will US 10-year bond yields cross 5% again? If yes, what would be its impact on emerging markets like India?

Looking at probable fiscal situation and growth-inflation dynamics in US, the neutral level for 10yr bond yield is in the range of 4.50-5.0%. This increase in US bond yields may pose challenges for emerging markets, as their bond yields must offer a suitably attractive rate of return. To make investing in these markets reasonable, one must consider hedging costs and ensure a return that surpasses the 4.5-5.0% yield of US bonds.

Q4. The RBI's downward revision of the GDP forecast to 6.6% from 7.2% raises concerns about the pace of economic recovery. Do you believe the Indian economy is on track to achieve its potential, considering current economic indicators?

RBI assesses the domestic activity to bottomed out in Q2:2024-25. In our assessment India's real GDP growth in Q2 at 5.4% is an aberration. The low GDP number is due to slowdown in industrial growth, particularly in manufacturing, mining, and electricity. However, high-frequency indicators suggest recovery, driven by strong festive demand and improved rural activities. Agricultural growth is supported by a healthy kharif crop and better rabi sowing. The services sector continues to expand robustly. Real GDP growth for 2024-25 is projected at 6.6%^, with Q3 at 6.8% and Q4 at 7.2%, indicating a resilient outlook. The next year’s quarterly growth outlook is estimated at 6.9% in Q1FY26 and 7.3% in Q2FY26. Overall, we feel that the growth might bounce back from the lows of Q2FY25 due to increased government spending and aided by strong high frequency indicators.

Q5. In light of a strong dollar and its global repercussions, how do you see currency movements affecting Indian investments?

RBI has been aware of the repercussions of a strong dollar and has been proactive to intervene from time to time. Financial markets have remained edgy amidst the rising US dollar and hardening bond yields, resulting in large capital outflows from emerging markets. Going forward, the outlook is clouded by rising tendencies of protectionism which have the potential to undermine global growth and push inflation higher. India, like other emerging markets is also likely to see volatility in asset prices.

Q6. We are in the last month of the year 2024 – any key learnings you would like to share?

We began the year with continued geopolitical risk amidst two ongoing wars. Then, developed economies started lowering rates, beginning with the European Central Bank, followed by the Bank of England. In September, the US Fed delivered a higher-than-expected cut of 50 bps, followed by two more cuts of 25 bps each (Source: US Federal Reserve Monetary Policy Documents dated 18^th Sept, 7^th Nov, 18^th Dec 2024), cumulatively bringing down the rates by a full percentage point. Additionally, a Republican sweep in the US elections may lead to tariff changes and tax cuts, potentially causing disruptions and inflation. These factors have effectively added an element of uncertainty to the financial markets. We believe that the volatility we have seen in 2024 might continue for some more time, and therefore, we need to remain prudent and agile in our actions to rebalance our investment portfolio from time to time.

Disclaimer: This document has been issued on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this document is for general purposes only and not a complete disclosure of every material fact. The sector, instruments and securities mentioned herein are for general assessment purpose only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The information / data herein alone is not sufficient and shouldn’t be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. Past performance may or may not be sustained in future. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The statements contained herein may include statements of future expectations and other forward-looking statements that are based on our current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Readers shall be fully responsible/liable for any decision taken on the basis of this document.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Mr. Janakiraman Rengaraju

Chief Investment Officer - Equity

Franklin Templeton Asset Management (India) Pvt. Ltd.

Mr. Janakiraman Rengaraju is Chief Investment Officer - Equity for Franklin Templeton Asset Management (India) Pvt Ltd. Mr. Rengaraju is responsible for overseeing all the local equity funds. His responsibility includes mentoring all the portfolio managers apart from continuing to be the Portfolio Manager for some of the key products. Mr. Rengaraju manages Franklin India Flexi Cap Fund, Franklin India Prima Fund, Franklin India Taxshield and Franklin India Smaller Companies Fund.

Mr. Rengaraju has been in the investment management Industry since 1997. He started his career with FT in 2007. Prior to joining Franklin Templeton, he was managing the investment corpus of Indian Syntans Group, a Chennai based privately held group of companies. Before this, he worked for UTI Securities, Mumbai. He is a CFA charter holder.

Q1. November has been a volatile month, with markets fluctuating between bullish and bearish trends. What is your outlook on the markets? Are there any chances of a Santa rally this time?

The domestic markets have remained volatile for the second consecutive month. Investor sentiment has been dampened by subdued corporate earnings for Q2FY25, concerns over potential U.S. tariffs, continued foreign fund outflows, and rising inflation. However, favorable state election results and easing geopolitical uncertainties have provided some support to the market.

Geopolitical uncertainty continues, and the change in the US government indicates that the coming months might be particularly eventful. Market volatility is expected, but the recent correction has created some upside potential, even with the earnings cuts. However, a shift in the trend of earnings estimate cuts might support a sustained market uptrend.

Q2. Foreign Institutional Investors (FIIs) shifted from being net sellers to net buyers in the latter half of November 2024. Could this act as a significant catalyst for a potential market rally ahead?

Although predicting the extent or direction of Foreign Institutional Investor (FII) actions is challenging, the fundamental outlook for the Indian economy remains strong in the medium to long term. The recent correction has indeed opened up the possibility of some upside potential in the markets.

Q3. SEBI proposes to introduce a close auction session in equity markets. It aims to replace the current Volume Weighted Average Price (VWAP) mechanism for closing prices. What are your thoughts on how this change will play out?

SEBI's proposal to introduce a Close Auction Session (CAS) in equity markets aims to reduce volatility and improve the accuracy of closing prices, especially for stocks with derivatives trading. The potential impacts include.

1. Reduced volatility: CAS aims to minimize price swings during market close, particularly on days of index rebalancing or derivative expiries.

2. Improved execution: Large orders might see better execution at the closing price, crucial for passive funds tracking indices.

3. Alignment with global practices: Many international markets already use a closing auction mechanism, aligning Indian markets with global standards.

4. Phased implementation: SEBI plans to introduce this in phases, starting with stocks that have sufficient liquidity, ensuring a smoother transition

Q4. After the Q2 earnings, how have you adjusted your investment strategy? Which sectors do you believe offer remunerative risk-reward opportunities at present?

The Q2FY25 earnings season has been weak, with both revenue and earnings growth under pressure across various sectors. However, the recent price correction presents some upside potential in the markets. Our investment approach is to capitalize on such near-term weaknesses to build positions in high-quality companies that can compound their earnings over many years.

We find a broad range of opportunities across sectors such as financial services, consumer discretionary, healthcare, real estate, and digital services. Additionally, the infrastructure and manufacturing sectors are offering investment opportunities.

Q5. What are the key potential trigger points for the markets in 2025 that investors should keep an eye on?

For 2025, we might expect a more turbulent year, particularly in terms of geopolitics. In India, these changes are already evident. We began FY25 with earnings growth projections of around 15% (source: Bloomberg), but now it seems we might achieve only high single-digit earnings growth for the Nifty. Expectations include RBI rate cuts and cooling inflation. The economic slowdown is expected to be transient, with a recovery in government capex during the second half of the fiscal year benefiting companies and sectors linked to the capex theme, refocusing on the ongoing multiyear capex cycle in India.

Q6. 2024 has been a record year for fundraising through IPOs and QIPs. What factors have contributed to this trend?

In 2024, retail inflows into single stocks are nearing record highs, similar to 2021, with positive inflows for 9 out of 11 months. India now has over 100 million unique investor (Source: NSE) trading single stocks, up from 30 million in FY20, with 7% of adults investing in equities, indicating a shift in investing habits. While only 25% of 2024's fundraising has been through IPOs, the IPO pipeline is strengthening, and Indian market multiples alongside a large domestic demand pool for equity, are also attracting the listing of MNCs' India arms.

The supply of equity in the market is fairly balanced, with block exits (promoter exits at 27% and private equity exits at 21%) making up a significant portion, alongside IPOs (25%) and Qualified Institutional Placements (QIPs) / Follow-on Public Offers (FPOs) at 27%. However, the large equity supply could limit market returns in 2025, despite strong domestic demand.

Mr. Deepak Agrawal

Senior Executive Vice President, Fund Management Debt

Kotak Mahindra Asset Management Company Limited

Mr. Deepak Agrawal is a Post Graduate in Commerce from Mumbai University, a qualified chartered account and a company secretary. Also cleared AIMR CFA Level I. His career has started from Kotak AMC when he joined the organisation in December 2002, where he was initially in Research, Dealing and then moved into Fund Management from November 2006.

Q1. India's 10-year benchmark government bond yield logged its biggest jump in six months in October. What are the factors that you think are affecting these yields right now?

Ans: Rise in US yield was the major driver for rise in domestic bond yield apart from higher inflation for the month of September 2024. The US yield were higher by ~ 65-70 bps in the month of Oct 2024. This was driver partially by strong jobs data for the month of Sept 2024 and partially due to market discounting Trump Presidency and Grand Old Party (GOP) clean sweep.

Q2. October saw the inclusion of Indian government bonds in the FTSE Emerging Markets Government Bond Index. Will this attract substantial foreign investment, boosting demand for Indian bonds?

Ans: After inclusion in JP Morgan Index and Bloomberg Emerging Market Bond Index, inclusion in FTSE Emerging Bond Index is also a positive sign. It increases the probability of Indian Bonds getting included in Bloomberg Aggregate Bond Index over the course of next 2 year, which can draw in substantial flow in Indian Fixed Income Market. Inclusion in FTSE Emerging Market Bond index will draw 4 Billion $ flows in Indian Fixed Income Market starting Sept 2025. Even though the quantum is relatively smaller as comparison to JP Morgan Bond Index, nonetheless it’s a positive development for the Indian Fixed Income Market.

Q3. India's fiscal deficit for April-September stood at ₹4.75 trillion, 29.4% of the estimate for 2024-25. What could be the possible reasons?

Ans: The government's spending has been lower due to general elections conducted earlier this year. Total government expenditure during the period was 21.1 trillion rupees, or about 44% of the annual goal. For the first six months, the government's capital expenditure, or spending on building physical infrastructure, was 4.15 trillion rupees, or 37% of the annual target, as against 4.9 trillion rupees for the same period a year earlier. GOI is likely to miss the budgeted capital expenditure for FY 25 by ~ 1 lakh crs. Net tax receipts for the first six months of the current financial year were 12.65 trillion rupees, or 49% of the annual target, compared with 11.6 trillion rupees for the same period last year. GOI finances also got a boost from 2.11 lakh crs dividend from RBI. The fiscal deficit target for the full is likely to be lower than 4.9% budgeted, which is positive for fixed income market.

Q4. The annual inflation rate in India rose to 5.49% in September of 2024 from 3.65% in the previous month, well above market estimates of 5%. How do you anticipate this?

Ans: Inflation for the month of September rose above 5% and for the month of October it has come above 6%. However the core inflation has been in the band of 3.6-3.70%. Inflation for September and October is largely due to vegetable inflation (tomato) which has started to cool off in the month of Nov 2024. Inflation for Q3 FY 25 is likely to be above RBI forecast, however for Q4 FY 25 Inflation is likely to be in line with RBI forecast. Inflation in Q1 FY 26 is likely to be in the band of 4.25-4.5%.

Q5. With gold prices hitting record highs recently, should investors consider increasing their exposure to gold, or is it time to book profits?

Ans: We have been advising investors to have some allocation to gold based on the advice of their investment counsellor.
We continue to remain positive on gold, given that global central banks continue to buy gold (H1 CY 24, Central bank gold purchases is 5% higher than last year), Monetary easing by Fed and given the fiscal, tariff and immigration policies of the Trump Govt is likely to push inflation higher.

Q6. How can retail investors effectively incorporate bonds into their portfolios to ensure steady income and enhance diversification?

Ans: Investors should adhere to asset allocation based on the advice of their investment counsellor. Within the fixed income allocation, debt funds are likely to outperform other traditional fixed income options due to rate cuts expected over next 1 year. As an alternative to debt scheme, Investors can also consider our Kotak Income plus arbitrage fund of fund, which invest 40% of the assets in arbitrage scheme and 60% of its assets in debt scheme. This fund is tax efficient as compared to other debt scheme.