Q1CY25 expected to bring heightened volatility, driven by tariffs, trade measures: Trideep Bhattacharya, CIO, Edelweiss MF

Looking back at the year gone by, in 2024, the mutual fund industry grew from Rs 49.05 lakh crore in November 2023 to Rs 68.08 lakh crore in November 2024, a rise of 39%. SIPs have been the backbone of the industry. Monthly SIP contribution grew from Rs 17,073 crore to Rs 25,320 crore. The total SIP AUM grew from Rs 9.31 lakh crore to Rs 13.54 lakh crore.

What to expect in the coming year? In an interview with Business Today, Trideep Bhattacharya, President & CIO, Equity, Edelweiss MF talks about what to expect in 2025.

Sharing his market outlook for the coming year Trideep Bhattacharya, President & CIO, Equity, Edelweiss MF says that he anticipates a significant shift in equity markets as a transition from the “politics of elections” in 2024 to the “politics of earnings” in 2025 takes place. He says, “In 2024, political promises and electoral outcomes shaped macroeconomic narratives, with elections occurring in over half of the top 20 global economies. However, as we move into 2025, the focus will likely pivot toward economic policies, particularly tariffs and trade barriers, shaping the politics of earnings.”

According to him the first quarter of CY25 is expected to bring heightened volatility, primarily driven by news surrounding these tariffs and trade measures. Following this initial turbulence, he foresees markets adapting to the evolving landscape, with corporate earnings taking centre stage as the primary driver for the remainder of the year.

Talking about the biggest trends in 2024 he says that despite considerable skepticism surrounding mid and small-cap stocks, they consistently outperformed large caps throughout the year. This superior performance reflected the earnings growth differential between these segments, reinforcing long-held belief that equity markets consistently reward higher earnings growth.

Another key takeaway he shares is the remarkable depth of the Indian equity markets. Even in the face of substantial FII outflows, the markets demonstrated resilience, with domestic inflows from DIIs, NPS, and other local sources more than offsetting the foreign outflows. He says, “This highlights the robust foundation and growing maturity of the Indian equity ecosystem, underpinned by strong domestic participation.”

Certain sectors that one could bet on in the coming time are manufacturing, consumption (premium and rural) and NBFCs, whereas some sectors that one has to be careful on are metal, mining and commodity amidst global tensions says Bhattacharya.

As per him large-cap stocks currently appear fairly valued, while mid and small-cap stocks trade at above-average valuations but have meaningfully higher growth differential than large-cap stocks. Given this backdrop, he advises portfolios that strike a balanced mix of large, mid, and small-cap stocks, providing portfolio managers the flexibility to adjust allocations based on prevailing valuations and growth opportunities.

He says, “Flexi-cap funds stand out as an excellent option for conservative investors, offering the adaptability to navigate varying market conditions. For investors with a moderate risk appetite, multi-cap funds provide diversified exposure across market caps, balancing growth prospects with risk management. Meanwhile, mid-cap funds are ideal for those with a higher risk tolerance and a long-term investment horizon of 5 to 10 years, enabling them to harness the growth potential of mid-cap stocks. This approach ensures a well-rounded strategy, catering to diverse investment goals and market dynamics.”