Expert view: Investors should consider defence, IT, pharma, railway stocks, says Aamar Deo Singh of Angel One

Expert view: Aamar Deo Singh, Senior Vice President of Research at Angel One, believes investors should consider the pharma, IT, energy, and hospitality sectors as they may outperform. Singh is also positive about railway and defence stocks for the long term. In an interview with Mint, Singh shares his expectations from the Union Budget 2025. He also discusses how the US Fed’s rate moves and the Donald Trump factor may impact the Indian stock market.

Edited excerpts:

How do you assess the market performance in 2024? What were the key triggers that shaped the market?

Markets hit record levels with both the Nifty and the Sensex, hitting all-time highs of 26,277and 85,978, respectively, to end the year with gains of +8 per cent, post the sharp correction witnessed since October, on the back of a slowdown in corporate earnings, slowest GDP growth in the past seven quarters, strengthening of the US dollar, record over ₹1 lakh crore selling by FIIs (foreign institutional investors) in October, geopolitical tensions and a sell-off in the US markets in December.

All these factors added to the sharp sell-off witnessed across the board, with most sectors, except pharma, IT and realty, bucking the downward trend.

The year witnessed an escalation of Middle East tensions, a flareup in the Russia-Ukraine war, a major slowdown in the Chinese economy and above all, the return of the Trump administration. All of these impacted the global and domestic markets.

With earnings recovery, declining inflation and easing geopolitical tensions, should we expect a better CY25?

Currently, the Nifty is trading at approximately 23 times FY25 earnings and around 20 times FY26 consensus earnings per share, indicating limited upside potential in 2025. However, certain sectors are expected to outperform, including pharma, IT, energy, and hospitality, to name a few.

At the same time, investors should brace themselves for an eventful and volatile year on the back of the US Fed’s rate decision and Trump’s policy decisions and movements in the US dollar, which could significantly impact markets. Investors must stay alert and cautious as judicious stock picking is the way forward in 2025.

How could the US Fed’s rate moves and the Donald Trump factor impact the market?

The US Fed’s rate moves generally have significance across global markets, and the recent 25 basis point rate cut was on expected lines.

Still, basis some disagreements amongst members, expectations of only a 50 basis point cut are now expected in 2025, as against the earlier expectation of a rate cut of 100 basis points.

Apart from the actual rate cut decision, the US Fed’s commentary and outlook on the economy hold a greater say over the markets.

The second factor, i.e., the Donald Trump factor, is likely to remain as unpredictable as the weather and is an equally important factor with all the potential to impact markets at large.

What are your expectations from the Union Budget 2025?

Every year, markets, corporations, investors, traders and citizens all look up to expectations from the Budget, and this time, too, it’s not any different. (i) Focus on the EV space and streamlining procedures and policies, including simplifying the refund process, (ii) enhancement of incentives for R&D for domestic pharmaceutical companies, (iii) incentivising infrastructure investments by Sovereign Wealth Fund and foreign pension funds, (iv) laying a roadmap for a comprehensive programme for yield improvement, (v) provide tax breaks for data centres and Global Capability Centres, (vi) increase in the deduction for home loan payments, and (vii) introduction of higher income tax exemptions to boost disposable income are some of the expectations from the Union Budget 2025.

How could the defence and railway stocks perform ahead of the Budget?

With the focus on the indigenisation of defence and a thrust towards “Make in India”, India’s defence production capabilities and capacities, with India’s defence production expected to reach ₹3 lakh crores by 2029, showcasing the strength of this industry, with defence exports hitting $3 billion mark, almost a 30-fold increase over the past decade. 

Hence, investing in defence stocks in a SIP mode, from a long-term perspective, could be looked at by investors in companies like BEML, BEL, Bharat Dynamics and HAL, to name a few. 

On the other hand, the Indian railways, the fourth largest in the world, employing over 1.2 million and with an overall annual revenue of more than $30 billion, act as the backbone of India’s transportation network. 

This network is expected to witness significant growth with the coming of age of high-speed trains; hence, investors can consider investing in railway stocks from a long-term perspective.

What sectors should we bet on at this juncture?

Following a remarkable political upheaval in the United States, 2025 is expected to be a very active year with plenty of opportunities for investors and markets. 

Donald Trump has the authority to make policies. To put it mildly, no US president has made it in the last fifty years when it comes to the US economy. 

As a result, his actions and words, which have the weight and capacity to influence markets worldwide, will be closely watched. His “MAGA (Make America Great Again)” strategy aims to ensure that America benefits from trade imbalances with other nations and that China faces severe penalties. 

India seems to stand to gain, but it is wise always to be prepared for the unexpected. Some sectors such as defence, IT, pharmaceuticals and CDMO, energy, hospitality and textiles are likely to perform well over the next year, which investors can consider investing over the next few years.

Are we heading to the end of the bull phase that started after the pandemic? Do you think it is time to focus more on value and less on momentum?

It’s always wise to spread one’s investment across asset classes, depending upon one’s risk appetite and investment horizon. 

Given that the current bull run, which started during the pandemic on the back of trillions of dollars being pumped into global markets to stave off the global economic collapse, continues its upward journey, interspaced with corrections. 

It’s been a dream rally across all major countries, including India, where the benchmark index, Nifty50, rallied more than three times from its lows in March 2022. 

The momentum of the current bull market still remains intact, but valuations across many sectors remain on the upper side, creating anxiety among investors. In such times, investing in ETFs and quality stocks through an SIP mode with a 5–7-year investment horizon is best. 

Looking at historical trends, equities have always outperformed all other asset classes in the long run, with the benchmark indices generating a CAGR between 14-15 per cent over the past two decades. 

However, it is equally important that investors consider their risk appetite before investing, and discipline and patience are the two essential pillars for wealth creation in the long run.

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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.