In an ever-evolving equity market environment, Krishna Sanghavi, Chief Investment Officer – Equities at Mahindra Manulife Investment Management, outlines a nuanced investment view. Managing over $3 billion in assets, Sanghavi shared his thoughts on market volatility, valuation mismatches, and emerging sectoral trends, providing a lens into how institutional investors are positioning themselves in 2025.

Sector Rotation and the Challenge of Narratives

According to Sanghavi, the market's leadership across sectors is shifting rapidly, making it difficult to identify consistent themes or narratives. “It’s not like the old days when you could ride one sectoral trend for years,” he explains. Investors today need to be more agile and discerning, as the pace of change has increased significantly.

The lack of a clear, dominating theme has pushed investors to adopt a bottom-up approach based on individual stock fundamentals rather than chasing macro-driven sector calls. This shift requires enhanced stock-picking skills and deeper research, particularly in identifying companies with strong balance sheets and margin visibility.

Large Caps vs Small Caps: A Valuation Perspective

Despite recent market corrections and rising volatility, Sanghavi believes large-cap stocks remain attractively valued, especially when compared to their small-cap counterparts.

“Small caps still remain a little bit on the valuation side, slightly higher, whereas large caps offer more comfort,” he said.

This sentiment reflects a broader trend among institutional investors who, in a frothy environment, prefer valuation stability, lower downside risk, and predictable earnings profiles — characteristics that large-cap stocks typically provide.

India's Macroeconomic Story Still Strong

Even as market narratives fluctuate, the underlying macroeconomic growth of India remains intact, says Sanghavi. The 10–11% nominal GDP growth rate continues to be a solid foundation for long-term equity investment.

“The bigger narrative is clearly the same — India is a growing economy,” Sanghavi stated, reinforcing that while short-term market dynamics are turbulent, India’s growth trajectory is reliable and encouraging.

This confidence in the Indian economy’s long-term structural drivers — demographics, consumption, infrastructure investments, and digital inclusion — provides a supportive backdrop for selective stock picking.

Spotlight on Defence, Industrials, and Healthcare

Among sectors, defence, industrials, and healthcare are gaining Sanghavi’s attention. These sectors, he says, are benefiting from strong government support, evolving policy frameworks, and rising global demand.

“The core business momentum of defence is intact… Indian companies can not only cater to domestic demand but also explore exports as the industry matures,” he said.

The government’s push towards self-reliance (Atmanirbhar Bharat), particularly in defence manufacturing, opens up opportunities for local players to scale and expand internationally.

Industrials and healthcare sectors are similarly buoyed by multi-year capex cycles and health infrastructure investments, respectively. Sanghavi believes these sectors provide margin visibility, scalability, and policy tailwinds, making them ideal hunting grounds for long-term investors.

Ferrous Metals: A Short-Term Opportunity

Sanghavi also sees potential in ferrous metals, driven by government-imposed anti-dumping duties that have offered near-term price and margin support.

“The anti-dumping duty has played out as something positive… it gives visibility for a few quarters, although it may be temporary,” Sanghavi remarked.

These policy tools have boosted earnings for metal companies in recent quarters, contributing positively to overall index performance. However, Sanghavi cautions that investors need to be mindful of volatility in global commodity prices and policy changes which can alter the outlook swiftly.

The Rise of Leveraged Market Players

While institutional investors remain focused on long-term fundamentals, Sanghavi pointed out that short-term price action is being increasingly influenced by leveraged retail and speculative traders.

This dynamic is particularly visible in the broader market and small-cap segments, where sharp price swings often lack corresponding earnings support.

Such behaviour can lead to mispricing and higher volatility, especially in momentum-driven environments. Institutional investors, therefore, are treading carefully, focusing on liquidity, risk management, and valuation discipline.

What It Means for Investors

For retail and institutional investors alike, Sanghavi’s message is clear:

• Stick to fundamentals: Focus on companies with strong earnings visibility, clean balance sheets, and pricing power.

• Be selective: The days of easy thematic bets are over. Stock selection is more important than ever.

• Lean towards large caps: They offer better valuation comfort, especially when small caps are overheated.

• Watch for sectoral tailwinds: Industrial, healthcare, defence, and even metals — selectively — offer pockets of opportunity backed by structural or policy support.

Conclusion

The Indian stock market in 2025 demands a more thoughtful and selective approach. As Krishna Sanghavi rightly summarised, "Clear narratives are fading, but the India story is intact."

Investors need to focus on core macro strengths, avoid speculative bets, and concentrate on sectors with both earnings visibility and supportive policies. In such an environment, disciplined capital allocation, patience, and valuation consciousness will separate long-term winners from short-term noise.

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