Sumit Poddar on 3 sectors that are likely to rebound in 2025

Sumit Poddar, Founder & CIO, Tikona Capital, says IT, manufacturing, and some consumer discretionary stocks might see a rebound in 2025. This is mainly because urban spending took a pause in 2024, but it is expected to recover now. Overall, the advantages of lower interest rates, digital advancements, and capital investments made by both the government and private sectors will likely show positive effects. Therefore, 2025 is expected to be a strong year. However, there may be some consolidation, and specific opportunities within sectors will need to be identified.

If I had to ask you to give us some high conviction buy for this year, any theme or any sector that looks like a bit of an outperformer, what comes to your mind?
Sumit Poddar: This is a question in each and every investor's mind – which are the sectors, which are the themes that are likely to benefit as far as 2025 is concerned? Let’s take a step back and look at what 2024 offered and how in that perspective we should be looking at 2025. So, just to give a blink of 2024, largely in the past, markets were getting influenced by inflation and interest rates. So, inflation definitely has come down as has the interest rate, although at a lesser expectation than what was there.

Apart from that, GDP was expected to grow at a much faster rate, but it slowed down because of tighter monetary policies as well as geopolitical scenarios. Coming to 2025, we would see less of these issues although growth becomes of an utmost importance in the minds of most of the administrations including India, US, and Europe, as well as we are seeing a kind of stimulus from China to kind of kickstart their economy.


So, all economies would fundamentally focus on bringing growth back. Given this backdrop, there are many themes that can come into picture with the Indian government spending a lot on the PLI schemes, possibly the effect of that is likely to come up. So, manufacturing as a theme comes at the top of the mind.

Within manufacturing, the sectors that are getting tailwinds from change in or renewable energy and even for that matter, something like decarbonisation or battery management systems or battery manufacturing is likely to be in focus as far as 2025 is concerned.

Apart from manufacturing, IT is likely to come back given that the new administration is likely to kickstart the economy in the US. So, yes, IT, manufacturing, a bit of a consumer discretionary primarily because 2024 saw a bit of a pause or maybe delay as far as urban spendings are concerned, but that is likely to come back.

On an overall basis, benefits of lower interest rates, digitisation, and capex that have been done in the country over a period, whether it be government or even private, is likely to see its impact. So, net-net 2025 will be a very good year as such. But yes, there could be consolidation and even within sectors, very specific opportunities have to be found.

Within the IT space, where would you like to place your bets because it is the earnings season that will be kickstarting. There are a lot of news flows related to the US that we are tracking with respect to the numbers. Then it is the management commentary that will be the key this time. But between the largecap and the mid and the small end of the market, there is always a debate going on. Given the valuations, where would you like to place your bets on?
Sumit Poddar: As you mentioned, Q3 generally is a weakish quarter primarily because of furloughs impacting the overall numbers. But within that, it is the commentary which is going to drive the sector as well as the valuations of each of these companies.

In the past, we have seen midcaps have given a better outlook as well as better growth and I believe that it is likely to continue primarily because of smaller projects getting larger and these companies are much more agile than the largecap.

Having said that, large or mid, most of the companies are likely to benefit if we see US coming back and if incoming president's policies are very pro-business and they benefit the US companies, most of the IT companies are likely to benefit out of it, although there are some kind of anti-immigration policies being talked about.

Having said that, the kind of technology wave that is in place, technology is getting a bit of complex, although it is getting simplified for the user, but at the same time for the corporates it is getting much more complex and that is why you need more and more of these vendors doing work for you as such. And within, of course, midcap and largecap yes there is a tilt towards midcap, but within that from a portfolio construction perspective one need to have both of them in place because IT as a sector is going to be in limelight in 2025 with volume growth, of course, coming back, even depreciation is helping them, and largely the sustained outlook that will be supportive.

Within midcap, we like Mastek which is more attractive from a valuation perspective.

On the largecap, our portfolio has TCS and as I said, it is a mix of largecap and midcap and we are looking at a few more companies in the IT space which are likely to be an interesting one like Affle which we already have in our portfolio and which is a beneficiary not just of IT but even of the digitisation that is taking place or the kind of marketing dollars that are getting spent. Because if we stretch Affle over a period of maybe five years, barring last six to eight months, it has been flattish as such in the last three to four years so that spend is likely to come back and is likely to benefit companies like Affle as well, so that is broadly on the IT side.

Nonetheless, all the IT, digitisation investments that have happened post COVID are likely to see fantastic outcomes going forward and with AI, ML coming into picture. Further benefit would flow not just to IT sector as such and it could flow to other sectors and in the previous session, we were talking about stocks like Zomato and Swiggy and all these are beneficiaries of huge tech investments that have taken place in their platforms in kind of aggregating this online to offline journey as such.