In conversation with Sanjay Chawla, CIO - Equity, Baroda BNP Paribas Mutual Fund

“Based on the exit rate for the quarter ending March 2025, I think market expectations for FY25-26 are more realistic, with low double-digit earnings growth. This augurs well for the market,” shares Sanjay Chawla, CIO - Equity, Baroda BNP Paribas Mutual Fund.

How do you assess the current equity market landscape, and what’s your outlook for the next 6-12 months?
Indian equity markets have been a lot more volatile in the last 12 months as compared to a trending market. There have been a couple of reasons—some fundamental and some extraneous impacting the multiples.
Earnings seem to have slowed down in the last calendar year due to elections, heatwave and the Government not spending on capex. In recent times, we have started seeing an uptick in earnings. If this trend continues, Indian equities should be on a fundamentally good earnings foundation.
There have been certain events which have impacted the valuations—Trump Tariffs and now the ongoing geopolitical tension in the Indian sub-continent. With this, we are seeing three regions—Europe, the Middle East and the Indian sub-continent where there is a simmering of war. At a macro level, this has implications for global growth and can also lead to supply chain disruptions.

What are your expectations for India Inc’s Q4FY25 performance?
Since the quarter ending December 2024, we have seen a gradual bend in terms of corporate profitability. We expect the same trend to continue for the quarter ending March 2025. Of course, you have to bear in mind that after a not-so-encouraging H1FY24-25, expectations had been lowered to a single-digit earnings growth.
Based on the exit rate for the quarter ending March 2025, I think the market expectations for FY25-26 are more realistic low double-digit earnings growth. This augurs well for the market. Valuations are in line with history; earnings growth is likely to be in line with expectations. The economy is on an even keel and global investors are relatively more inclined to India on the valuations front.

Have you made any recent strategic shifts in sector allocation? If yes, what prompted the move?
As an ongoing process, we keep evaluating companies and sectors for investment ideas and opportunities. The consumption space looks interesting at this juncture given where the valuations are and the fact that the budget has provided additional money in the hands of the salaried class. We expect this may drive consumption in the coming quarters. Due to uncertainties in the U.S. economy, we have seen corporates deferring their discretionary IT spend. This has led to a not-so-optimistic outlook for Indian IT service providers. Valuations also do not seem to provide comfort. With an interest rate cut, we expect the biggest challenge for Banks/NBFCs pertaining to the cost of funds to be addressed. Since the sector has not done much in the last couple of years, it throws up interesting opportunities.

With the rupee strengthening, are you re-evaluating positions in export-driven sectors?
Given the uncertainty around tariffs and potential slowdown in global GDP, this can potentially impact global trade. In such a scenario, we have been focusing on domestic-oriented sectors. These sectors offer us not only higher growth but the degree of confidence in the growth coming is also high. Hence, we have not focused on export-oriented sectors in the first place.

What’s your perspective on the surge in thematic fund investments — how should investors position themselves, and what pros and cons should they consider?
Last financial year saw a surge in the launch of thematic funds. With the right allocation in the right theme with the right timing, a particular theme can add alpha to the portfolio.
However, we need to keep a few things in mind to optimise the risk-reward. Any thematic fund in an investor’s portfolio must be aligned to their risk appetite. It is a tactical bet, and weight should be aligned accordingly. Ideally, choose a thematic fund which is non-cyclical to ensure that the timing of entry and exit is not critical. Alternatively, one should be able to time the same.