Market Expert Insights: Divam Sharma, co-founder and fund manager at Green Portfolio PMS, is optimistic about a potential recovery in the Indian stock market. In a discussion with Mint, he emphasized that markets historically tend to bounce back three to six months ahead of economic recovery, suggesting that this is an ideal moment to boost equity investments rather than remain inactive.
Sharma identified mid and small-cap stocks in sectors like defense, renewable energy, and manufacturing as promising long-term investment options.
Is the Worst Behind Us for the Indian Stock Market?
Since September 2024, the Indian stock market has experienced significant declines, with the Nifty 50 and Sensex dropping by 14 percent and mid and small-cap indices falling by 17-20 percent. This downturn can largely be attributed to foreign investors withdrawing $29 billion from Indian equities since October, which has led to a loss of $1 trillion in market capitalization.
The anticipated recovery may hinge on corporate earnings rebound, improving sentiment from foreign investors, and a potential rate cut by the RBI in April 2025, all of which could encourage upward momentum. Furthermore, India’s resilient domestic liquidity has provided stability during turbulent times, and undervalued mid and small-cap stocks might represent substantial long-term investment opportunities.
Expected Economic Trends and Opportunities
The RBI’s recent rate cut and expected subsequent cuts are expected to support corporate growth and foster increased consumer spending by reducing borrowing costs. Investors should be attentive to the sentiments of foreign portfolio investors, who have recently withdrawn large sums, although the Indian economy remains fundamentally strong, driven by agricultural growth and rising consumption.
In the coming months, corporate earnings will be critical. Strong Q4 results from key sectors such as IT, financials, and consumer products could bolster investor confidence. The government’s infrastructure initiatives and possible Federal Reserve rate cuts could further boost market optimism.
Investment Strategies in Current Market Conditions
In light of recent market volatility, increasing equity allocation should be considered, particularly in small and mid-cap sectors, which have faced more severe declines than their large-cap counterparts. Strategies should focus on supporting industries instead of directly investing in overvalued stocks—opting for plays in domains such as battery technology and components for the electric vehicle market could yield better long-term outcomes.
