IT services spending is expected to improve, with increase spending in cloud services; Nilesh Shah, Managing Director, Kotak Mahindra AMC said, “Market corrections are opportunities to invest in fundamentally strong companies at reasonable valuations."
FinTech BizNews Service
Mumbai, December 04, 2024: Kotak Mahindra Asset Management Company Ltd (“KMAMC”
/ “Kotak Mutual Fund”), today released its Market Outlook report for 2025. Kotak Mutual
Fund, launched the report highlighting various investment themes that investors can watch
out for in the upcoming year, while sharing the macro-economic perspective on the direction
for the Indian economy and capital markets.
The report highlights five key themes that can aid the markets in 2025
1. Capex Cycle Revival
India is already into a crucial multi-year capital expenditure (capex) cycle, which is expected
to drive significant economic growth. The central govt. and listed corporate spending are likely
to grow while state spending is likely to lag. The expansion in corporate order books across
multiple sectors highlights the widespread nature of this cycle. The number of projects has
reached levels last seen in 2017. Private Sector projected cost is at a decadal high at INR
55,122Bn.
2. Penetrating Financial Services
Financial services is a diverse sector with varying performance across subcategories. The gap
between Bank credit growth and deposit growth is narrowing which could ease pressure on
margins. The Banking sector has seen healthy return ratios and improving capital adequacy
levels reducing the need for fresh capital. The banking sector valuations are reasonable vs the
broader market and are close to long term averages for both public and private sector banks.
3. Technology – New Age Service Offerings
IT services spending is expected to improve, with increase spending in cloud services. India is
expanding its offerings in new-age services such as AI, blockchain, and cybersecurity,
positioning itself as a key player in the global tech landscape. One of the key drivers for the
sector is the rise of generative AI. AI demand expected is expected to grow 15x from 2022 to
2027E.
4. Consumption and Rural Revival
India’s consumption sector has shown a mixed recovery post-COVID, with premium products
doing well while mass consumption lagged. Urban areas have outperformed rural
consumption so far, though rural spending is now showing signs of recovery. Nuclearization of
families has gone up from 34% in 2008 to 50% in 2022 which would structurally drive
consumption demand. The shift from unorganised retail to organised retail is another key
underlying driver for the sector.
5. Healthcare
Healthcare spending is set to increase with the rise in per capita GDP. As the population ages,
there's a global trend of increasing medical spending. India is well-positioned to meet this
growing demand, being a major producer of pharmaceuticals and vaccines. India is emerging
as the best alternative outsourcing destination as companies look to de-risk supply chain away
from China and in the area of Contract Development and Manufacturing Organizations
(CDMOs). The market for small molecule discovery is also large and growing, with significant
increases in R&D spending.
Fixed income investments are increasingly captivating given the current market conditions.
Allocating a portion of portfolios to fixed income may help to offer stability to the portfolio
while reducing risk. With interest rates on a structural decline but expected fluctuations,
focusing on longer-duration instruments—ideally with a 12 to 18-month horizon would allow
investors to benefit from potential future rate cuts. As per the report, RBI is likely to cut rates
by 50-75 bps between now and Dec 2025. The combined Centre and State deficit for FY 26 is
expected to close near 7%, could lead to an India rating upgrade in. FY 26. Favourable
macroeconomic conditions, potential rating upgrades, balanced demand-supply dynamics,
and rate cuts are likely to lead the 10-year G-Sec yield to trend lower, trading in the band of
6.25% to 6.50%. This makes fixed income investments a compelling opportunity for those
seeking sustainable returns in the current market scenario.
Nilesh Shah, Managing Director, Kotak Mahindra AMC said, “Market corrections are
opportunities to invest in fundamentally strong companies at reasonable valuations. With
earnings growth set to drive the market and limited room for P/E expansion, it's essential to
moderate return expectations and focus on sustainable, long-term growth. Fixed income
investments now offer competitive returns with lower risk, especially in longer durations.
While increased government spending and strong consumption trends fuel optimism, value
opportunities exist in sectors like private banks, auto, telecom, pharma, and IT. The upcoming
wedding season are poised to boost consumption and economic growth, making this a
suitable time for selective and disciplined investing.”
