'Shift to 12-13% growth will create a selective market'

Corporate India is transitioning from a period of exceptional earnings growth exceeding 25 per cent over the past two to three years to a more sustainable growth trajectory of 12-13 per cent over the next few years, says VINIT SAMBRE, head - equities at DSP Mutual Fund (MF). In an interview with Abhishek Kumar in Mumbai, Sambre explains how this shift will likely create a more selective market environment. Edited excerpts:

- VINIT SAMBRE

2024 proved to be another year of strong equity MF returns across categories. What drove the rally?

The gains were largely backended, with the Nifty 50 showing minimal returns until the general elections. The formation of a stable government and expectations of policy continuity improved investor sentiment.

One key development has been the shift in market dynamics, with the quality factor gaining prominence. As earnings growth moderates, we believe it's important to be selective and focus on companies with strong earnings visibility and solid business fundamentals.

As we enter 2025, the outlook remains cautious. Sluggish corporate earnings growth, coupled with macroeconomic challenges such as softer gross domestic product growth, currency pressures, and emerging asset quality concerns in certain sectors, is weighing on market sentiment.

When do you see the earnings growth momentum picking up again? Do you see the market remaining range-bound until then?

Earnings growth momentum has been affected by subdued government spending in the first half of 2024-25 (FY25). While a gradual recovery is expected in the fourth quarter of FY25, it may still fall short of budgeted targets. State capital expenditure is also likely to be constrained as more funds are allocated to welfare programmes.

On the consumption side, the outlook remains weak. Slower job creation, muted salary growth, and poor credit expansion are impacting urban consumption, while rural consumption is showing early signs of improvement.