In an exclusive chat with ETMarkets, Kedar Kadam, Director – Equities, Asset & Wealth Management at Dolat Capital Markets, explains why ‘smart money’ is increasingly betting on India’s domestic growth story, the sectors that could emerge as wealth creators, and how investors should navigate the current market landscape. Edited Excerpts –
Q) Thanks for taking the time out. What a swift rally we have seen in the second half of August. What is fueling the rally on D-Street – GST reforms, trade pacts?
A) Indian equities have staged a notable rally in the second half of August 2025, fueled by optimism around sweeping GST reforms and a surprise sovereign rating upgrade by S&P.
These developments have lifted sentiment, particularly in consumption and financial stocks, with expectations of increased demand and lower tax burdens. However, investors should approach this uptrend with cautious optimism.
While the record of Services PMI points to resilience in parts of the economy, broader macro indicators remain uneven, and corporate earnings growth has yet to show meaningful acceleration.
Global headwinds, including lingering geopolitical risks and divergence in global central bank policies, also warrant attention.
As such, while the reform-driven momentum is encouraging, sustained market performance will likely depend on tangible earnings improvements and more consistent macroeconomic traction in the months ahead.
Q) If GST reforms do kick in – do you see consumption as a basket to produce next set of wealth creators? Or are there more sectors?
A) Well, If GST reforms are implemented as proposed, the consumption sector is well-positioned to lead the next phase of wealth creation, given its direct link to rising affordability and demand, across autos, FMCG, insurance, and retail.
However, from a valuation standpoint, many frontline consumption names are trading at adequate valuations, pricing in a fair amount of future growth. This calls for selective participation, especially in mid-cap and emerging players with operating leverage and room for margin expansion.
Beyond consumption, sectors like financial services, real estate, infrastructure, and tech-enabled platforms could also emerge as structural beneficiaries of a more formalized and tax-efficient economy. These areas not only benefit from the second-order effects of rising consumption but also offer a more attractive risk-reward profile in terms of valuations.
In short, while consumption may anchor the rally, broader wealth creation is likely to come from adjacent and underpenetrated sectors with earnings catch-up potential.
Q) What is your take on Jackson Hole speech of US Fed – Jerome Powell? It is probably Jerome Powell last speech.
A) In my view, Jerome Powell’s final Jackson Hole speech struck a tone of cautious optimism, signaling that the U.S. Federal Reserve sees inflation gradually aligning with its 2% target, but that any policy easing will remain firmly data dependent.
As his last major appearance before his term ends in May 2026, Powell emphasized patience, credibility, and a potential shift in the Fed’s policy framework, moving away from its earlier tolerance of inflation overshoots to a more balanced approach that also prioritizes financial stability.
While this may hint at rate cuts on the horizon, Powell avoided firm timelines, reinforcing that the path forward hinges on upcoming inflation and labor data.
For investors, this signals that while the tightening cycle may be behind us, markets shouldn’t expect an aggressive easing stance just yet.
Q) It is first where India got upgraded and we saw a downgrade of US by Moody’s back in May. What does it suggest?
A) The contrast between India’s sovereign rating upgrade by S&P and the earlier downgrade of the U.S. by Moody’s in May reflects a shifting dynamic in global credit markets and macroeconomic leadership.
For India, the upgrade highlights growing investor confidence in its fiscal discipline, structural reforms (like GST), and resilient growth outlook, even amid global volatility. In contrast, the U.S. downgrade points to concerns over rising debt levels, political brinkmanship, and long-term fiscal sustainability.
Taken together, this divergence suggests that emerging markets like India are gaining relative credibility and macro stability, while developed markets are facing increasing scrutiny over debt and governance risks a notable shift in the global economic narrative.
Q) Which sectors which one should look at amid GST reforms, trade talks etc.
A) GST reforms and ongoing trade talks are likely to boost sectors tied to consumption and formalization, including autos, consumer durables, insurance, and retail, as lower tax rates improve affordability and demand.
At the same time, real estate, building materials, defence, and logistics stand to gain from government spending and improved trade efficiency.
On US trade talks, while the tariffs pose clear challenges especially for gems, seafood, and certain luxury goods they also open doors for India’s textile, electronics, and pharma sectors.
Q) Do you there are sector(s) in which the story is already played and one can look at bringing down their exposure?
A) In my view, sectors such as IT services, banks, NBFCs particularly housing finance are showing signs that warrant caution and potential reduction in exposure.
The IT services sector, after a prolonged period of strong growth, is facing valuation pressures amid global economic uncertainties and potential slowdowns in tech spending.
Banks and NBFCs, while benefiting from improving asset quality, may encounter challenges due to rising competition, margin pressures and slowdown in advances growth.
Housing finance companies are similarly exposed to competition and affordability concerns, potentially slowing demand. Given these factors, investors may want to reassess their exposure to these sectors to manage risk effectively.
Q) How should one play the small & midcap space?
A) In my view given global & domestic market volatility and macro uncertainty, one should focus on quality companies with strong growth prospects, healthy balance sheets, and good governance.
Diversification across sectors and themes is important to manage volatility. Prioritizing businesses aligned with India’s structural growth trends such as domestic consumption, infrastructure, and financial inclusion can enhance returns.
Regular monitoring and readiness to exit weakening positions are essential. For those less confident in stock picking, small and midcap mutual funds or ETFs offer diversified exposure with professional management, making this dynamic segment accessible while balancing risk.
Q) We are seeing FII money moving from largecap to small & midcaps? Can we say that smart money is targeting ‘growth’?
A) Yes, FIIs are strategically shifting capital away from large-cap stocks, which are more exposed to global economic shocks and trade tensions, and are increasingly investing in small- and mid-cap companies that are relatively insulated from these external risks.
According to exchange data, FII holdings in midcap stocks rose by over 15% in the first half of 2025 compared to the previous year.
This shift reflects growing confidence in India’s domestic growth story, as midcap companies typically have a stronger focus on the internal economy, operate in high-growth sectors and generally offer more attractive valuations than large caps.
Q) Between value and growth, it looks like growth stocks will emerge as winners?
A) Growth stocks may look like future winners, especially with rising interest in sectors linked to domestic demand.
However, given the current global uncertainty, geopolitical tensions, muted earnings growth, and fair-to-rich valuations, value stocks offer more comfort.
A value-focused approach provides stability in volatile markets. Still, selectively adding quality growth names with strong fundamentals and clear visibility can help boost returns and create alpha.
Q) Any new theme which you think has the potential to turn into wealth creators in the next 5-10 years?
A) Over the next 5–10 years, several emerging themes in India hold strong potential to become long-term wealth creators. Key among them are the energy transition and green tech, driven by clean energy adoption and EV infrastructure; a manufacturing revival under ‘Make in India 2.0’; and innovation-led growth in healthcare and health-tech.
Other promising areas include agri-tech and rural digitization, AI-driven automation across sectors, and mass premiumization as India’s middle class grows more aspirational.
These themes align with structural shifts in the economy and offer attractive opportunities for investors willing to take a long-term, selective approach.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
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