Q4FY25 to be better than Q3FY25; valuations attractive in banking: Chandraprakash Padiyar of Tata Asset Management

Expert view on markets: Chandraprakash Padiyar, Senior Fund Manager at Tata Asset Management, is optimistic about an earnings revival in India. He believes Q4FY25 may outperform Q3FY25 trends and that FY26 could see higher growth than FY25.

In an interview with Mint, Padiyar discussed the Indian economy, risks arising from US President Donald Trump's tariff policies, and attractive sectors. Here are edited excerpts from the interview:

Is the worst behind for the Indian stock market?

We believe corporate earnings growth may pick up very well in FY26 from a low base of FY25. There are likely to be high differences among various sectors. For example, consumer-facing listed companies seem to be losing shares to unlisted peers, so growth challenges remain.

Export-focused businesses, especially IT software, continue to grow at a slower pace. On the other hand, domestic-focused industrials and various manufacturing-oriented B2B (business-to-business) companies are likely to deliver a strong performance going ahead. Stock selection could potentially reward long-term investors.

What are your expectations from Q4 results? How will it shape the domestic market sentiment?

We do not focus on such short-term earnings outlook. However, we believe Q4FY25 is likely to be better than Q3FY25 trends. FY26 is likely to be a higher growth year relative to FY25.

Is the narrative of resilient growth and strong domestic demand still holding up?

Indian macro parameters are among the best in the world. Part of FY25 saw some below-normal growth due to much lower government spending, including delays in clearing due to vendors and RBI keeping a tight control on credit growth in the economy.

We think the Reserve Bank of India (RBI) has already reversed its stance and is more pro-growth, and government spending is back on the long-term track, meaning that domestic demand is likely to pick up going ahead.

How significant is the risk posed by Donald Trump's tariff policies? How should retail investors navigate global uncertainty?

Risk is on two counts – one, decision-making takes a pause in terms of corporate capex in the major economies in the world, and two, tariffs inherently can lead to much slower global growth, leading to pressure on earnings growth for corporates, especially in export-focused businesses.

The US president has identified 2 April 2025 as the date to announce reciprocal tariffs on all economies. It would be prudent to get clarity on how the corporate world is likely to be impacted, and the date is not very far from today. We are optimistic about corporate India.

Has the US Fed rate cut cycle ended? What does an elevated interest rate regime mean for Indian investors?

The interest rate outlook depends on growth and inflation. If the US goes ahead with its current tariff plans, we believe it will lead to slow growth, which in turn means lower inflation since demand itself corrects, leading to lower interest rates as well.

One must wait and watch for the outlook over the next few months. It is difficult to have a firm view of the US Federal Reserve interest rate trajectory until we know the business environment's future direction.

What sectors should we focus for the next two to three years?

Domestic focused industrials and manufacturing names could be the preferred places to invest for us. Apart from this, banking, real estate and oil and gas are few sectors where valuations are attractive and risk reward is in favour.

What is the secret of long-term wealth creation? How important is asset allocation and SIP discipline in this regard?

Asset allocation is probably the most important part of potential wealth creation. Not being greedy and trying to maximise returns every time is the right way to go. Compounding is the eighth wonder of the world – long-term compounding at a steady pace is more important than high volatility of returns.

What's your take on the rise of passive investing?

All investment styles have their role to play in an investor’s asset allocation. Passive investing also has its period of outperformance and underperformance.

For example, it is generally believed that if an investor has to take exposure to the large-cap segment, it is better to take passive index funds.

However, in the past few years, most active fund managers have been beating the index funds by decent margins. One needs to take proper advice from an expert before creating the right asset allocation for different market environments.

How is artificial intelligence (AI) shaping investment strategies?

These are early days, and all of us on the investment side are trying to find use cases for artificial intelligence in investment strategies. On the face of it, AI tools available today do look promising, and hopefully, we will be able to capitalise on them going ahead.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.