Many were taken aback by India’s gross domestic product (GDP) numbers for the current fiscal year’s July–September quarter. At 5.4%, the Q2FY25 GDP growth rate was the lowest in almost two years.
Although the economy grew by 6.7% in Q1FY25, India’s GDP rose by an amazing 8.1% in the same quarter last year. Notably, for the third straight quarter, GDP growth figures have decreased in Q2FY25.
Experts are still upbeat about the Indian economy, meanwhile, even when the figures fall short of projections. Some of them observe positive indicators, such as a resurgence in private consumption. According to experts, the decline in GDP growth is only temporary and will begin to improve by Q4FY25.
“The Q2 FY25 GDP growth came in below expectations, but there are several encouraging signs within the data. Private consumption grew at an impressive 6 per cent, significantly higher than both the overall GDP growth rate and the 2.6 per cent recorded in Q2 FY24. This dispels recent concerns about weakness in private consumption. Government consumption improved from the previous quarter but was lower compared to the same period last year, likely reflecting cautious spending ahead of elections,” Vikas Gupta, CEO and Chief Investment Strategist at OmniScience Capital, observed.
The market ignores GDP shock.
Despite some selling pressure during morning trading, the Indian stock market wisely bounced back, ignoring worries over economic expansion. On Monday, December 2, the benchmarks of the Indian stock market, the Sensex and the Nifty 50, ended the day with robust gains of more than 0.5 cents apiece. The BSE’s mid and smallcap sectors surged to 1%, increasing the market capitalization to around ₹450 lakh crore.
The market most likely priced in a reduction in GDP growth following India Inc.’s poor Q2 results. After a drop in Monday’s morning trading session, this appears to have set off a new purchasing frenzy.
Regarding the state of the Indian economy, experts don’t seem concerned. Global cues, such as the Fed’s policy decision, President-elect Donald Trump’s tariff policies, and geopolitical developments, continue to be the primary market triggers at this time.
What should Indian investors do?
Experts view every drop in the Indian stock market at this time as a chance to purchase and establish long-term holdings.
The second quarter’s economic slowdown was mostly caused by low government spending as a result of elections and an overabundance of monsoons in some regions of the nation. Given the anticipated significant push for government capital expenditure following the results of the Maharashtra election, this could change in the second half of the fiscal year. Additionally, the recovery in rural areas might pick up momentum, and the RBI’s rate decreases would enhance the system’s credit flow.
Since domestic institutional investors (DIIs) continue to purchase during dips, a significant market reduction may present an opportunity to buy, according to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. The industries that are not affected by the downturn and can be purchased on falls are pharma, telecom, and digital businesses.
Even if mid-and small-cap stocks are trading at high multiples, Sneha Poddar, VP of Research, Wealth Management at Motilal Oswal Financial Services, emphasized that the recent correction in the Indian stock market has cooled off the valuations in large-cap stocks. This offers a chance to include specific bottom-up stocks.
“Nifty-50 is now trading at 19.6 times FY26E EPS, while mid-cap/small-cap indices are trading at 30x/23x one-year forward P/E multiples, off from the Sep’24 highs but still rich versus their history as well as relative to Nifty-50. Thus, the recent correction and the consequent moderation in valuations provide an opportunity to add select bottom-up ideas. We advise investors to remain overweight towards large caps in their portfolio, with selective exposure towards mid-caps and small caps,” said Poddar.
Investors can use tactics like portfolio diversification, advises Bigul CEO Atul Parakh. Additionally, they might think about investing in a mix of gold, bonds, equities, and real estate.
“Investors have the option to allocate funds in areas like infrastructure, financial services, consumer products, technology, healthcare, and renewable energy, which may offer promising opportunities that correspond with present market trends and future growth prospects based on research underpinned by fundamentals before making investments in any sectors,” said Parakh.
Sectors, stocks to buy
The head of research at StoxBox, Manish Chowdhury, favours large-cap banking sector equities because he thinks their value is fair and that they are better equipped to manage any future unanticipated asset quality stress.
“Our top picks in this space include HDFC Bank, ICICI Bank and SBI, which offer a good risk-reward from a one-year perspective,” said Chowdhury.
Chowdhury thinks the cement industry has merit as well. He anticipates an improvement in volumes over the following two quarters, supported by increased government spending in areas like housing and infrastructure.
“Improved operational efficiency and any price hikes by cement companies in the peak demand season would further tilt scales in their favour. Ambuja Cements and Shree Cement are our preferred picks in the cement sector,” Chowdhury said.
IT, healthcare, BFSI, consumer discretionary, industrials, and real estate are the areas where Motilal Oswal Financial Services’ Poddar is most heavily invested. She is underweight in international industries like metals, oil, and gas, nevertheless.
According to Prashanth Tapse, Senior Vice President-Research at Mehta Equities, the real estate market appears to be at its lowest point and might benefit from any interest rate reduction by the RBI. After extensive consolidation, the pharmaceutical industry also appears to be in good shape and is prepared to operate. Following a 15% pullback from the top, investors should also concentrate on the auto industry.
According to Tapse, the auto industry will consolidate for one to two months at the current rate, offering a chance to acquire the top automakers.
If the inflation trend turns around, Tapse also anticipates some growth in the FMCG industry. Additionally, any interest rate reduction by the central bank has the potential to revive the industry and boost demand for consumption.
“If we see any revival in rural and urban demand, Hindustan Unilever (HUL) can recover, but at a slower pace. Technically, HUL will consolidate in the current range of ₹2,400-2,500 levels before making a fresh move. The level of ₹2,720 looks like strong resistance, and closing above this level, we may see a string rally towards its recent high of ₹3,035, but it looks like it will take three to six months to retest the new highs,” said Tapse.
The pharmaceutical industry presents a defensive investment choice because of its consistent growth and inelastic demand, which are fueled by growing global healthcare demands and robust export potential, according to Jathin Kaithavalappil, assistant vice president at Choice Broking.
“Government support through PLI schemes and healthcare infrastructure investments further strengthens the sector, with companies like Sun Pharma and Dr. Reddy’s Labs was ell-positioned due to their R&D capabilities and global presence,” said Kaithavalappil.
“The IT sector remains a solid long-term bet, supported by ongoing digital transformation, increasing demand for cloud and AI solutions, and a weak rupee boosting export profitability. Additionally, potential rate cuts could lower financing costs and enhance valuations,” Kaithavalappil said.
Investors should purchase equities that are anticipated to gain from the resurgence of domestic profit growth, according to Shrey Jain, founder and CEO of SAS Online.
“Select stocks in the sectors such as financial services (retail lenders and microfinance), downstream energy companies, information technology and pharmaceuticals can be looked at on dips. Savvy investors should also look at corporate actions such as demergers and turnarounds to benefit from the special situation,” said Jain.
