In this edition of ETMarkets Smart Talk, Ram Medury, Founder and CEO of Maxiom Wealth, shares his cautious view on midcaps, smallcaps, and the IT sector, which he believes are beginning to look overheated.
While the broader market outlook remains constructive for the second half of 2025, Medury advises investors to tread carefully in segments that have run up too fast, too soon.
He also offers insights into sectoral opportunities, asset allocation post the RBI’s rate cut, and the impact of global geopolitical and trade risks on Indian equities. Edited Excerpts –
Q) Thanks for taking the time out. June is turning out to be a volatile month for D-Street. How is 2H2025 likely to pan out for Indian markets? Do you think most of the negatives are behind us?
A) We expect good rainfall in the upcoming monsoon period which may increase the earnings of 10-15% for agriculture-based stocks and also will help in reducing inflation at the base level. With the recent RBI rate cuts we assume a stable low inflation outlook but the global geopolitical scenario has changed quickly.
As a large part of India’s inflation is linked with crude oil we do have at least one negative ahead of us as oil price climbs.
Overall, with increased spending on Infra by the government, the growth rate of the organised sector is expected to improve in H2.
Q) What does a 50 bps cut mean for equity and bond markets? What should be an asset allocation strategy?
A) A 50 bps rate cut by the RBI makes borrowing cheaper, boosting liquidity and supporting growth, which is positive for both equity and bond markets.In the current Indian scenario, rate-sensitive sectors like banks, autos, and real estate may see strong equity gains, while long-duration bonds are likely to rally as yields fall.Post the rate cut, Investors can consider increasing exposure to good quality stocks and on the fixed income side in Short duration/Accrual funds. A small allocation to gold can act as a hedge against potential inflation post recent geopolitical events.
Q) What is your take on Q4 earnings from India Inc.? Any hits and misses which you tracked in the results?
A) In the quarter ending Mar’25, YoY sales growth held steady near 9%, reflecting sustained business momentum. However, YoY PAT growth dropped to around 10% from nearly 17% in the previous quarter which can be counted as a ‘miss’.
Aggregate profit margins improved to 10%, returning to their recent peak. This would be a ‘hit’ as the trend continued for two consecutive quarters, indicating better operational efficiency in corporate India given the backdrop that both sales and profit growth receded from the prior quarter.
Q) Nifty Bank hit a record high in June which suggests that there is a lot of interest in banking stocks. What is fuelling the rally in financials – is it the rate cut by RBI?
A) The rate cut of RBI by 50 bps and CRR cut of 100 bps is expected to unlock 2.5 lakh crore for banks by Dec 25.
This extra liquidity will help the banks in more disbursal and thereby improving their bottom-line and topline.
The recent corrective measures by RBI to monitor MFI and unsecured lending as also result in lowering of distressed assets in big financial institutions which has also improved the overall health of banks’ Balance Sheets.
Q) Which sectors are likely to remain in limelight in the 2H2025?
A) Banks and NBFCs would do well as a direct impact of the rate cut. The consumer durables sector is also expected to have a good run with increasing disposable income and increasing exports.
With many of the consumer durables now working with MNCs to manufacture their products, there is room for growth in this sector. Defence is another sector that would do well given the geopolitical turbulence.
Q) The tonality keeps changing from the US when it comes to ‘Trade Talks’. Do you think it is still a relevant headwind for equity markets across the globe?
A) The markets seem to be now shrugging off the initial apprehensions of tariff tantrums. US markets initially plunged after the new tariffs were announced in April 2025, with the S&P 500 falling nearly 15% at its lowest point.
After a pause in tariff escalation and some policy walk-backs, markets rebounded, and the S&P 500 and Nasdaq are now modestly above where they started the year, while the Dow Jones remains slightly negative year-to-date.
Despite the recovery, as of mid-June 2025, US markets have not fully regained their pre-tariff highs and remain volatile due to ongoing trade tensions and global uncertainties.
Meanwhile, Indian markets have significantly outperformed US indices in the same period, reaching new highs and showing resilience despite global trade tensions and the US tariff shock. India has low trade exposure with the US if we consider direct import and export.
But with the US tariff risk, comes global tariff risk which may impact the demand of Indian goods outside as competition intensifies. With the India US trade deal in talks and major new announcements coming up, we can expect India to be a beneficiary in few of the sectors like Auto Ancillaries and Electronics.
Q) China equity markets are up in double digits while we have underperformed most EM peers. Does it make a case for global diversification?
A) China’s economy is growing at 5.4% but facing demographic and regulatory headwinds. While it holds strategic power in rare earths and currency innovation, export models are under strain.
Its market remains undervalued, needing global trust to re-rate. Challenges loom, but scale and influence remain formidable on the world stage.
Also, there is a lot of geopolitical tension all over the world, with three international borders on the boil, a lot of volatility is expected in all the major economies.
Q) Which sector(s) is/are looking overheated and why?
A) India’s stock market rally has been broad-based, but concerns of overheating are rising in midcaps, smallcaps, IT and cyclical sectors like realty and metals.
Valuations are appearing stretched, especially in mid and smallcaps, driven by strong retail inflows. IT is facing global demand and macroeconomic headwinds.
The automobile sector, especially OEMs could be subdued this year, as the growth rate may be slower due to the high base last year. Despite gains, realty and metal sectors remain vulnerable to interest rate or commodity price shifts.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
