Potential corporate tax cuts under Trump bode well for IT: Anand K Rathi

It’s been a great year for Indian markets, which have risen by as much as 20 per cent in the last 365 days. We may also see a 20 per cent closing return if these gains are sustained.

A 20 per cent return is indeed excellent for the market. The positive signs of recovery in banks are even more promising, with many balance sheets completely cleaned up and improved earnings. This trend is not just encouraging; it’s a reason for optimism, likely to continue the earnings momentum we’ve seen over the past few months.

However, not all is proceeding as expected. There is a noticeable shift in consumer behavior, with many becoming more cautious about their spending. This presents a potential challenge that many companies may need to navigate in the near future.

Overall, the market is buoyed by strong GDP figures and the government’s continued expansion of its capital expenditure and capacity. These are all robust, positive indicators that bode well for the market’s future.

In 2025, patience may be key for investors. Foreign Institutional Investors (FIIs) are likely to wait for signs of earnings growth and positive momentum before committing significant capital to India. Until we demonstrate positive earnings growth, they may refrain from making substantial investments in the country.

While it is possible that they will stop selling their holdings, substantial investment in India may not occur until we can showcase consistent positive performance. Thus, 2025 could be characterised by this need for patience. We might see one or two new highs, but significant breakthroughs are unlikely, given the rapid growth we’ve experienced over the last three years.

India is expected to grow, potentially at rates of 10 per cent, 11 per cent, or 12 per cent. While we may not witness the 30-40 per cent returns seen in small- and mid-cap stocks like we did in the past, this growth potential should instil a sense of hope for the future.

Geopolitical situations, even those seemingly distant, can have immediate short-term impacts. For instance, events in Pakistan or Bangladesh can quickly reverberate and affect us. On the other hand, developments in Russia, Ukraine or Israel are less likely to have an immediate significant impact on us.

While trade may suffer and countries might choose to support or oppose various sides, this could lead to a more widespread conflict, affecting global trade. However, it’s important to remember that India is not primarily export-driven; it tends to focus more on internal markets. Therefore, I don’t anticipate major long-term effects, but some short-term impacts could be worth considering.

Oil, interestingly, is more influenced by demand than the dollar. This means that even if geopolitical tensions persist, oil prices are likely to remain stable. So, even with a strengthening dollar, which is expected, the impact on oil prices may not be significant.

Moreover, our stable and beneficial oil deals with Russia provide a sense of security. Therefore, oil is not a significant concern. As for gold, it seems that it doesn’t react to geopolitical news as much as one would hope.

Therefore, while the dollar may strengthen, gold may not necessarily follow suit. In summary, the dollar and gold are not expected to be major players in the market this year, 2025.

We are excited about the potential of two sectors: IT and pharmaceuticals. The IT sector, in particular, is poised for significant growth, especially if potential corporate tax cuts under Trump come to fruition. The anticipation of these cuts has already sparked discussions, and if they do occur, we can expect a surge in IT spending by corporations, which would be a boon for the industry.

The pharmaceuticals sector is also set for growth, with India playing an increasingly significant role on the global stage, much like it does in IT. This trend not only suggests more outsourcing to India but also underscores the country’s growing influence in the pharmaceuticals sector, a fact that we can all take pride in.

While the banking sector has been subdued in recent years, it has the potential to spring positive surprises. Therefore, we consider banking to be a third sector worth looking into.

Additionally, manufacturing and infrastructure are expected to remain focal points for government investment, making them the fourth sector to consider.