Pharma: Neutral Impact from US tariffs on branded drugs
The recent announcement of 100% tariffs on patented and branded drugs has raised concerns about Indian pharma exports. Devalkar, however, pointed out that the impact will likely be limited:
“Very few Indian companies export branded drugs, and as a share of revenues it remains minimal,” he said. Instead, the focus should be on active pharmaceutical ingredients (APIs) and intermediates shipped to the US. Drawing parallels with the auto ancillary sector, Devalkar said parity in treatment should prevent major disruption.
“Overall, it looks like a neutral event for the bulk of the pharma portfolio,” he added.
IT: Global valuation reset continues
Devalkar remains cautious on IT stocks, even after the recent correction. He argued that Indian IT cannot be viewed in isolation since it competes with global peers like Accenture and Globant.“Globally, IT valuations have derated sharply. Stocks that once traded at 35–40x PE are now closer to 12–15x due to a slowdown in client spending across BFSI, auto, and pharma,” he explained.The H-1B visa fee hike is not the biggest concern, in his view. Instead, the real challenge is weak deal flow and pricing pressure, as clients delay large contracts. “It’s not just about India. This slowdown is global,” he said.
Defence: Scarcity premium at play
Defence has been a bright spot in Axis MF’s portfolio, though valuations are getting stretched. Devalkar attributed the rally to relative growth scarcity in Indian equities.
“When banking, FMCG, and IT are not growing, sectors with visible earnings like defence, EMS (electronics manufacturing services), hospitals, and hotels attract a scarcity premium,” he said.
Globally too, defence budgets are rising, and Indian companies are showcasing capabilities abroad. “The sector has tailwinds. But valuations must be seen in the context of market-wide growth opportunities,” Devalkar cautioned.
IPO boom signals market diversification
While secondary markets remain rangebound, IPO activity has surged. Devalkar welcomed this trend, noting that new listings are coming from diverse sectors such as consumer, B2B, defence, and electronics.
“This broadens India’s market cap-to-GDP representation, giving investors a wider set of opportunities beyond traditional finance and IT,” he said.
With mid- and small-cap stocks correcting 20–40% from their peaks, IPO valuations are also becoming more reasonable, making the primary market attractive for investors.
Consumption: GST cuts, festive season in focus
On consumption, Devalkar believes the impact of GST rationalization is partly priced in. Early festive demand indicators suggest 15–20% growth, translating into roughly 5% annual upgrades for the sector.
“The big question is whether demand sustains beyond Diwali,” he said. Sustained growth will depend not just on GST cuts but also on tax reliefs, lower interest rates, and improved liquidity.
Devalkar urged investors to watch for post-festive trends before betting on a long-term consumption rally.
Market outlook: Waiting for earnings recovery
Axis MF continues to adopt a selective approach, deploying cash where valuations and growth visibility align. Devalkar emphasized that Q2 results could still remain weak, but Q3 onwards earnings may start to recover.
“With GST cuts, interest rate relief, and improving liquidity, we expect sentiment to pick up into 2025. The key is to track earnings sustainability beyond festive demand,” he said.
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