In an interview with ET Now, Sriram noted that Q2 FY25 earnings marked a turning point after four consecutive quarters of downgrades. “Numbers are finally aligning with expectations,” he said, adding that the government’s demand-boosting moves—GST cuts, income-tax breaks, and consumption incentives—will start filtering into financial performance over the coming quarters.
Santa rally? Maybe not 30% gains, but trend is upward
While historical data suggests the market delivers an average 30% gain after surpassing previous quarterly highs, Sriram cautions that such expectations may be “a tad too optimistic.” However, he remains firmly constructive on the direction of the market, citing improving earnings visibility and moderating valuations.
India’s macros flash green—but nominal GDP Is the key watch
India’s strong 8.2% real GDP growth provides a supportive macro backdrop. But with inflation staying unusually low, nominal GDP growth—critical for revenue expansion—may be subdued in the near term.
Sriram expects double-digit earnings growth in FY26, with low-to-mid teens growth likely in FY27 and FY28 once inflation normalises and boosts nominal GDP.
Financials, Pharma, power utilities among top sectoral bets
Sriram identifies three clear sectoral leaders for the next market leg:
1) Financials
Reasonably valued and poised to benefit from softer monetary policy, improving credit growth, and stable asset quality.He expects banks and lenders to remain foundational to market leadership.
2) Pharmaceuticals
Strong opportunities in CDMO, contract manufacturing and innovation-led drug development make pharma a promising multi-year story.
3) Power & energy infrastructure
A global surge in electricity demand, driven by data centres and AI investments, is creating a structural upswing.
Indian power equipment makers and T&D players are set to benefit from accelerating capex and hyperscaler expansion.
FII selling to slow, buying likely to resume in 2025
Foreign investors have been net sellers over the past year as currency weakness and earnings downgrades dented dollar returns.
But this trend is now easing, said Sriram. As the rupee stabilises, earnings recover, and relative valuations improve sharply versus Asian peers, FII inflows should resume next year.
“FIIs will return the moment India’s risk-reward becomes more favourable than regional alternatives,” he noted.
RBI’s dilemma: Should it cut rates when GDP is growing at 8%?
The upcoming monetary policy review will be a balancing act. With real GDP strong and consumption improving, the RBI must decide whether to preserve policy space for future shocks, or to cut rates early to support growth amid weak nominal GDP.
Sriram expects a nuanced, cautious stance, but believes the policy environment is ultimately turning more supportive for lenders.
Bottom Line
The market’s record highs are not a signal of froth, but of stabilising fundamentals, improving earnings visibility, and stronger sector-specific tailwinds.
The coming year, Sriram concludes, will be defined not by momentum trading but by selective, fundamentals-driven sector rotation—with financials, pharma, and power utilities leading the charge, and FII flows gradually turning supportive.