ETMarkets Smart Talk: Deploy, don’t delay! Arun Patel advises long-term investors to stay invested in 2H2025

As market volatility tapers and India’s economic fundamentals remain robust, long-term investors should stay the course rather than wait on the sidelines, says Arun Patel, Founder & Partner at Arunasset Investment Services, in this edition of ETMarkets Smart Talk.

In a wide-ranging conversation, Patel shares his views on the market outlook for the second half of 2025, why domestic consumption remains a key theme, and how falling inflation and an accommodative RBI stance are creating a favourable environment for equities.

He also outlines ideal asset allocation strategies for investors with a multi-decade horizon and highlights sectors like pharma, fintech, and quick commerce as emerging opportunities worth tracking. Edited Excerpts -

Q) Thanks for taking the time out. We closed May on a high not but witnessed some volatility in June – is it geopolitical concerns weighing on sentiment?

A) Thank you so much for having me. While June did see some volatility driven by geopolitical tensions, particularly the Israel–Iran conflict and worries about a wider regional escalation, these concerns turned out to be short-lived.

A ceasefire held, and crucially, Iran refrained from blocking the Strait of Hormuz, likely recognising that such a move would have punished Asian economies more than its intended targets of Israel and the US. As a result, oil prices have returned to levels seen before the initial strikes.

On the domestic front, India’s macro fundamentals remain highly supportive. GDP for January–March rose to 7.4%, beating estimates, while May CPI eased to 2.82%. Forex reserves are near $700 billion, among the world’s highest.

Q4 FY25 saw a modest earnings recovery compared to the previous two quarters, with the BSE 500 delivering high single-digit revenue growth and around 10% net profit growth.

Notably, excluding oil and gas, the broader BSE 500 universe recorded strong underlying PAT growth of about 12–14%, supported by healthy performance in pharma and consumer sectors.

Q) As we are about to end 1H2025, what are your expectations or assumptions for the rest of the year?

A) As we move into the second half of 2025, we expect consumption to drive growth. With inflation cooling, real purchasing power should rise meaningfully.

The RBI’s June 2025 policy statement revised its FY 2025–26 inflation forecast down to 3.7% from 4.0%, and we believe actual inflation could average even lower, around 2.5% over the next six months. This creates space for further monetary support, enhancing household spending capacity.

However, private investment may continue to lag, particularly with global FDI flows subdued amid persistent policy uncertainty in key economies. Shifting regulations and trade frictions could discourage large investment decisions.

Fortunately, India’s domestic investor base has shown resilience, with steady flows even through recent volatility, providing a structural cushion for markets.

We see the second half as a “stock pickers’ market,” where company-specific fundamentals will matter more than broad macro narratives. Investors should be nimble, focusing on quality businesses across all market caps.

Overall, given strong domestic demand and policy stability, we expect Indian equities to surpass last year’s highs before the year ends.

Q) Are there any new or existing themes that are likely to do well in 2H2025?
A) We believe domestic consumption will remain a standout theme in the second half of 2025. With inflation easing — the RBI now projects retail inflation at 3.7% for FY 2025–26, and we see the potential for an even lower 2.5% average — real purchasing power is set to rise, supporting stronger household spending.

In addition, pharmaceuticals offer selective opportunities. Several names in the sector are trading at attractive valuations, with healthy demand outlooks both domestically and in export markets.

In terms of new sectors - India’s evolving stock markets present compelling opportunities across innovation-driven sectors that could reshape long-term investment strategies.

In financial services, fintech platforms have doubled their active client share since December 2020, while a leading insurance technology company saw online policy sales surge 14 times between FY19 and FY25.

The rapid adoption of UPI has transformed payment systems, expanding access and enabling a more inclusive financial ecosystem.

Quick commerce is also experiencing remarkable growth, with gross merchandise value projected to rise sixfold by FY27, reflecting changing consumer preferences and demand for hyperlocal delivery.

In automobiles, design innovation is helping leading passenger vehicle manufacturers gain market share and enhance customer loyalty.

Meanwhile, India’s steadily rising defence capital expenditure highlights opportunities in cost-effective, indigenous production as the sector modernises.

Historically, innovation has driven economic growth, and these emerging segments demonstrate how India’s dynamic innovation ecosystem can reward forward-looking investors seeking sustainable, long-term value while participating in a transformative growth story.

Q) Geopolitical concerns weighed on crude oil in the past few weeks. How do you see crude oil moving in the near future and what could be the possible impact on earnings and GDP growth?
A) Consensus forecasts place Brent crude in a $60–70/bbl range by late 2025, with WTI slightly lower. Barring a major shock, most analysts see prices trending modestly lower as supply remains adequate and global demand growth softens.

However, geopolitical risks — particularly around Middle Eastern chokepoints — could still push prices well above consensus.

For India, a stable or softer crude trajectory is supportive. Lower oil prices help manage the current account, reduce subsidy burdens, and keep inflation in check, thereby boosting consumer sentiment and real purchasing power.

On the corporate side, cheaper crude benefits margin profiles for energy-intensive sectors such as paints, chemicals, transport, and cement. Broadly, lower oil acts like a tax cut for the economy, freeing up resources to sustain GDP growth momentum.

Overall, absent a fresh geopolitical flare-up, we see crude oil as more likely to support than undermine India’s growth and corporate earnings over the next two quarters.

Q) In terms of valuation comfort – which sectors are on your radar?
A) In the current environment, we see attractive valuation opportunities in domestic consumption and pharmaceuticals. India’s strong high-frequency indicators and its position as the world’s fastest-growing major economy make consumption-driven businesses especially compelling.

Within pharma, several companies are trading at reasonable valuations with promising near-term growth prospects, supported by robust demand and favourable export opportunities.

More broadly, the market appears to be transitioning from a macro-driven rally to a stock picker’s phase. Correlations across sectors have been unusually high in recent quarters, but we believe we are approaching a turning point where company-specific fundamentals will take precedence

In this scenario, bottom-up approaches — including focused mutual funds and other concentrated strategies — are well-placed to capture opportunities.

Q) How are FIIs looking at India amid falling interest rates globally?
A) As of 28 June 2025, Foreign Institutional Investors have recorded total equity outflows of around ₹1.23 lakh crore year-to-date, driven by global volatility and profit-booking earlier in the year.

However, the tide has clearly begun to turn. FIIs have been net buyers for four consecutive months — March, April, May, and June — with June alone seeing net inflows of approximately ₹8,320 crore as of June 28.

In total, FIIs have brought in about ₹23,000 crore across these four months, signaling renewed confidence.

Sectorally, FIIs are favouring financials, energy, and select consumption plays, while remaining cautious on IT, auto, and FMCG due to global growth uncertainties and relatively rich valuations.

Debt market flows have moderated after a record ₹1.24 trillion of FPI purchases last year, as higher US yields and a firmer dollar weigh on appetite.

Nevertheless, India’s robust macro fundamentals — 7%+ GDP growth, contained inflation, and stable policy — remain a powerful draw.

With global strategists like Morgan Stanley, JP Morgan, and Goldman Sachs maintaining an “overweight” on India and earnings growth forecasts of 14–17% through FY27, the improving FII trend should continue into H2 2025.

Q) If someone plans to allocate say Rs 10 lakh (30-40 years) in 2H2025 – should they put fresh money to work? What is the ideal asset allocation?
A) If someone aged between 30–40 is looking to invest Rs 10 lakh in the second half of 2025, it would generally make sense to deploy the funds rather than waiting on the sidelines.

Over a long investment horizon (20+ years until retirement, for example), equities tend to outperform other assets, and delaying can mean missing out on compounding.

A reasonable asset allocation could be:

• 70–80% in equities — spread across large-cap, flexicap, and some mid/small-cap funds to balance stability and growth

• 20–30% in debt — such as high-quality debt funds, PPF, or tax-saving bonds to provide stability and liquidity

If the investor is new to equity investing, a staggered approach (for example, investing over 3–6 months via STP/SIP) can help manage market volatility.

Finally, risk appetite, future financial commitments, and emergency reserves should be considered before finalising the allocation.

Q) How is the rate trajectory looking from the RBI? Do you think the front-loaded 50 bps cut was enough to boost consumption?
A) The RBI has shifted decisively toward an accommodative stance in 2025, cutting the repo rate by 100 basis points to 5.5% and announcing a 100 basis points CRR reduction from 4.5% to 3.5%, phased from September.

The front-loaded 50 bps repo cut was aimed at swiftly reducing borrowing costs for banks, which should translate into cheaper loans for households and businesses, encouraging spending.

Meanwhile, lowering the CRR will release about ₹2.5 lakh crore into the banking system, expanding credit flow. With inflation relatively low, purchasing power is preserved, further supporting consumption.

The RBI’s strong pivot recognises that consumption will be the key driver of economic growth in the near term, especially as investment may remain subdued due to policy uncertainties.

While the 50-bps front-loaded cut should help, its impact will likely build gradually as confidence improves, and credit transmission strengthens over the coming quarters.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)