Avoid fresh investments in Small Cap funds for now; they are relatively overvalued - Wallet Wealth
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Investment Ideas Note June 2025 – Wallet
Wealth
Market Outlook
The Indian equity markets in
2025 May opened on a positive note with key corporates posting strong Q4 FY25
results.
The BSE Sensex began May
with upward momentum, supported by robust Foreign Institutional Investors (FIIs)
inflows following April's outflows.
A significant highlight this
month was the final redemption of SGB 2017-18, at ₹9,468 / gm — a 221% return
over 8 years — underscoring the potential of long-term investing and the impact
of global cues on gold prices.
Index
Performance – May 2025
|
Index
|
May 2, 2025 |
May 30, 2025 |
Gain/Loss |
|
BSE
Sensex |
80,510.99
|
81,451.05
|
+1.2%
|
|
BSE
Midcap |
42,707.87
|
45,136.35
|
+5.7%
|
|
BSE
Small Cap |
47,365.54
|
52,413.25
|
+10.7%
|
Key Developments in
May 2025
• Geopolitical Tensions:
On May 7, India conducted
airstrikes targeting terrorism-related facilities in Pakistan in response to
the Pahalgam terror attack. The resulting four-day conflict led to a brief
market dip:
o
Nifty fell ~140 points
o
Sensex closed ~412 points lower. However, the
market rebounded shortly after amid ceasefire talks and stable investor
sentiment.
• Macro Positives:
The IMD forecasted an early
monsoon, a potential catalyst for reduced food inflation and improved rural
demand.
FII
& MF Activity – May 2025 (₹ Crores)
|
Instrument
|
FIIs
(Net) |
Mutual Funds (Net) |
|
Equity
|
+16,441.33 |
+56,302.22
|
|
Debt
|
-14,586.90 |
-85,566.01
|
|
Total
|
+1,854.43
|
-29,263.79
|
Observation:
May saw a sharp increase in
FII equity inflows, while mutual funds also recorded significant equity buying.
However, both FIIs and MFs trimmed debt holdings considerably, likely in
anticipation of interest rate changes.
Macroeconomic
Highlights
• Inflation:
Retail inflation fell to
3.16% in April, below the RBI's 4% target, boosting the case for rate cuts.
•
• RBI Monetary Policy:
The
repo rate was cut by 50 bps to 5.5%, the third consecutive cut, easing
borrowing costs and making fixed-income instruments less attractive. Headline
CPI inflation for FY25 projected at 4.5%.
•
• GDP:
India’s GDP grew by 7.4% in
Q4FY25, exceeding forecasts (7.2%).
o
FY26 GDP target: 7.0%
o
Agriculture & allied sectors grew by
4.4%, a strong improvement from the previous year.
o Strong
rural and urban demand, healthy credit growth, government capex
• Exports:
Remain resilient, aided by
government initiatives and expanding global markets. Vigilance on external
risks is advised.
• Employment Trends:
Key growth sectors: IT,
healthcare, consumer electronics. Focus areas: skill upgrading, AI integration,
and inclusive participation.
Investment
Outlook & Strategy
Equity
Outlook:
• Market Cap to GDP Ratio: 122 –
indicating moderate overvaluation.
• Recommendation:
o Prioritize
goal-based investing. Focus on Large Cap and Hybrid Funds. Selective exposure
to Banking & Financial Funds for moderate risk-takers.
o
Avoid lumpsum investments; adopt SIP/STP over
20–24 weeks.
o
Avoid fresh investments in Small Cap funds
for now; they are relatively overvalued.
o
Large & Mid Cap funds are expected to
outperform in the current cycle.
Debt
Outlook:
• 10-Year G-Sec: 6.23%
• 5-Year G-Sec: 5.80%
• Suggestions:
o
Consider high-quality Corporate Bonds and
Banking & PSU Debt Funds with ~3-year maturity for potential double-digit
returns.
o
Use Ultra Short / Money Market Funds for
parking funds <1 year.
o
Avoid Credit Risk Funds due to current credit
spreads and risk premium.
Closing
Note
As global uncertainties and
local opportunities co-exist, maintaining a well-diversified, goal-aligned
portfolio is key.
The ongoing macroeconomic
tailwinds rate cuts, declining inflation, strong earnings, and resilient GDP —
provide a favourable backdrop for disciplined and phased investing.
For more details and Investing
S.Sridharan, Founder, https://www.walletwealth.co.in/
AMFI Registered Mutual Fund Distributor
2nd Floor, No.8A, 2nd Main Road,
Nanganallur,
Chennai – 600 061
Phone: 044-48612114
https://www.walletwealth.co.in/
Email
id: sridharan@walletwealth.co.in
You can contact Mr.S.Sridharan for all types of investments
including mutual fund investment, medical insurance, and life insurance.
Read articles written by Mr. S. Sridharan in Nanayam Vikatan, a
leading personal financial management magazine.
https://www.vikatan.com/author/855-sridharan-s
For
personalised guidance, feel free to reach your advisors 99401 16967 | ☎ 044 – 48612114
Wallet
Wealth LLP, 2nd Floor, No.8A, 2nd Main Road, Nanganallur, Chennai – 600 061
Disclaimer:
This
document is intended for private circulation. The views expressed are based on
information deemed reliable but are not guaranteed for accuracy or
completeness. Opinions are subject to change without notice. Please consult a
qualified advisor before making any investment decisions.
.
