Our investment philosophy will remain contrarian in 2025 because we believe valuation discipline is fundamental to long-term wealth creation. In a market often driven by momentum, where rising prices attract more buying, we aim to focus on the fundamentals of companies rather than chasing trends. For example, if you like a stock at ₹100, it is logical that you should like it less at ₹200 because higher valuations reduce potential returns. Conversely, if a stock drops from ₹200 to ₹100 but the fundamentals remain intact, it becomes more appealing.
This principle is one of the reasons why active funds can outperform passive funds which tend to buy more of a stock as its price rises, increasing their holdings at higher valuations. This momentum-driven behaviour can lead to overvaluation risks.
In contrast, our contrarian approach of active investing prioritises valuation discipline, allowing us to avoid these risks and instead capitalise on opportunities where the market misprices companies.
In a dynamic market like India’s, where cyclical shifts are frequent, maintaining a contrarian stance helps us navigate irrational market behaviour while focusing on long-term value creation.
If India’s real estate sector continues to see improved demand and supply, so have to domestic cyclicals such as cement, capital goods and also financials.
The one area I am concerned about is unsecured credit, where we could see more pain. This is the only business in an economy where once your revenues decline, your costs actually go up in absolute terms, because the costs are built into collections.
Earnings estimates in fast-moving consumer goods are still too high and steel will have challenges, considering demand from China is sluggish. With the US economy already growing, we are not too sure how much more additional demand for the Indian IT sector will come from there.
We do not expect mega, but modest returns from large caps in 2025: Investors with a moderate risk appetite can consider investing in balanced advantage products or multi-asset products. The ICICI Prudential Business Cycle Fund is uniquely positioned to capitalise on India’s evolving economic cycles by dynamically adjusting its portfolio allocation across sectors that are expected to benefit from the current phase of the business cycle.
The rationale behind this fund lies in understanding that markets move in cycles, and different sectors perform differently at various stages of the economic cycle. By aligning sectoral exposure with the prevailing macroeconomic environment, this fund ensures that investors can ride the growth of sectors poised for outperformance while avoiding cyclical downturns.
â— Anish Tawakley is ICICI Prudential AMC’s Co Chief Investment Officer – Equity
(As told to Salil Panchal)
First Published: Jan 24, 2025, 11:34
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