Markets
Top sectors to pick and avoid in 2025
Summary
- Fund managers talk about what to invest in and where not to invest in the new year.
Mint spoke with wealth management experts to identify their top investment picks and strategies for 2025. Financial services stocks emerged as a favourite, driven by their reasonable valuations and the potential boost from monetary stimulus, which could revive credit growth and stabilize margins. In contrast, metals are largely seen as a sector to steer clear of in the coming year, facing challenges such as sluggish global growth and persistent overcapacity in China. While valuations in the sector are lower, uncertainties continue to cloud the outlook.
Fund Manager 1: Shreyash Devalkar, Head Equity, Axis Mutual Fund
Devalkar expects sectors like consumer discretionary, healthcare, and capital goods to perform well in 2025. “The consumer discretionary sector benefits from the premiumization theme as luxury spending has done well," he said while adding that companies in the capital goods space currently have strong order books. Meanwhile, both domestic and export markets in the pharmaceutical sector are growing steadily.
Devalkar has avoided financial services, consumer staples, and oil and gas. Lenders are facing challenges from slowing growth and pressure on net interest margins, driven by retail asset quality concerns and sluggish deposit growth. Consumer staples are seeing weak urban consumption despite signs of rural recovery. That said, oil, gas, and their derivatives, as global commodities, are expected to remain soft due to slower global growth.
Fund Manager 2: Aniruddha Naha, CIO - Alternatives, PGIM India AMC
Sectors that Naha is positive on are pharmaceuticals, banks and non-banking financial services and cement. “We continue to like the pharmaceutical sector as we see tailwinds in the form of—the US price erosion cycle has turned given drug shortages and only a mild increase in competitive intensity; strong drug pipelines across companies; stable domestic growth and; benign cost environment".
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He added that the banking sector is facing macro headwinds, including slowing credit growth, deposit pressures, and rising credit costs. Despite these challenges, fundamentals for most large private banks and larger NBFCs remain stable with manageable margins and credit costs.
Cement prices have slipped to a four-year low largely driven by low demand amid high competition. The stable cost structure, reasonable valuations, and expectations around the increase in realizations gives him confidence in the sector.
On the other hand, sectors that he avoids are automobiles, chemicals and consumer.
For consumer, Naha sees tepid revenue growth coupled with pressure on margins, weak demand environment across categories led by slowdown in urban consumption, and inflationary pressures.
Fund Manager 3: Neelesh Surana, CIO, Mirae Asset Investment Managers (India)
He favours large private banks due to their reasonable valuations, with the potential for monetary stimulus to revive credit growth and margin stability. Healthcare remains favourable, particularly in the US generics space, which is relatively unaffected by recent policy changes in the US.
"We expect revival in mass/rural consumption which has been impacted since covid owing to multiple issues, and prefer consumer discretionary to consumer staples, given long term growth with increase in per-capita incomes."
Having said that, Surana is underweight on capital goods, cement, and staples. Also, valuations are currently above long-term averages for capital goods stocks, he explained.
Given the likely muted growth in capex, overall volume growth in the cement sector could remain subdued.
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For staples, “Long-term revenue growth in the sector appears to be lower than implied by current valuations," he said. Furthermore, he is seeing disruption in distribution channels, as the increasing bargaining power of quick commerce could negatively impact the traditional distribution reach of consumer staple companies.
Fund Manager 4: Harsha Upadhyaya, CIO – Equity, Kotak Mahindra Asset Management Company
He favours banking stocks, both large private sector and public sector banks. He is also optimistic about IT services, anticipating a cyclical recovery in IT spending. Lastly, he sees potential in AI migration, where the immediate need for cloud adoption presents significant opportunities for many Indian companies.
Upadhyaya suggests avoiding metals as a sector. The sector faces headwinds such as sluggish global growth and persistent overcapacity in China.
Fund Manager 5: Taher Badshah, CIO, Invesco Mutual Fund
Badshah expects power, healthcare and banks performing well in 2025.
The push for power transmission and renewable energy is expected to boost demand in the sector. Meanwhile, he continues to favour industrials, while defence stocks look interesting following their recent correction.
Pharma and healthcare sectors stand out as promising, driven by regulatory changes and the "China Plus One" strategy. Within these, specific pockets of CDMO (Contract Development and Manufacturing Organizations) are poised for strong growth in the coming years. Additionally, the hospital segment appears attractive.
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The recent CRR cut is expected to boost loan growth and support a rise in deposits, addressing the deposit creation challenges banks faced over the past few quarters. This development positions banks for recovery. Additionally, capital market players such as depositories, asset management companies and exchanges present compelling investment opportunities in this environment. Even the IT sector holds promise.
Badshah thinks it’s better to keep a low exposure or even avoid metals and commodities for now. He’s not too keen on traditional FMCG staples either, but he feels the beverages segment still looks decent in terms of growth potential.
