As the world grapples with ongoing geopolitical tensions and heightened risks of economic downturns, the performance of equity markets in 2025 remains a pressing concern for investors. Nikhil Gangil, smallcase Manager and Founder of Intrinsic Value, in an interview with Business Today, shed light on key factors such as monetary policy adjustments, inflationary pressures, global trade dynamics, and sector-specific shifts that will play a pivotal role in shaping market trajectories.
While historical resilience offers some optimism, the interplay of these variables could lead to heightened volatility, creating both challenges and opportunities for investors in the year ahead.
BT: What is the current market scenario for the equity market? Give comments using some historical data
NG: Current markets are overvalued, not just today they have been overvalued for quite some time. Below is our developed valuation tool which talks about the Peaks and Bottoms of the market with good accuracy.
The Orange Line represents Undervaluation, and the Blue line represents Overvaluation. Whenever this Tool has shown so much divergence with Overvaluation on the high side, we have seen significant corrections in the next 3-6 months, be it 2008, 2017, 2021, or now. The same goes for Bull rallies: whenever divergence is on the other side, it has indicated a rally, as seen in 2009, 2012, 2014, and 2020.
As a value investor, we do consider the growth potential the country has, but following this valuation has helped us find potential traps and opportunities in the market.
So we need to look for those few pockets where the market is undervalued and start looking in these opportunities.
BT: Considering the ongoing geopolitical tensions and potential economic downturns, how do you anticipate the performance of equity assets in 2025? What are the key factors that could significantly impact equity market performance in 2025?
NG: Geopolitical Tensions have never been the negative news for the market, as it is portrayed in media. However, now Trump’s election may lead to some trade disputes like the last time. But if we are investing in undervalued Quality companies the effect will be close to Nill.
Coming back to wars, Below is the market performance in times of WAR
Every time there is a War, the market gives significant returns. (Source Internet)
Below is the market performance when our own country went through War.
Retail Investors have been waiting for correction since Feb 2022 when the war broke out between Russia and Ukraine but instead we saw one big bull Rally instead. As I said market may be correct, but that will happen due to its own weight and not because of War.
The year 2025 can be challenging, yes but not something we have not seen already in the last 10-12 years of market. I am sure of that. It can be more challenging for our Momentum and Growth investors friend because Reversion to mean will happen more in those Overvalued and Overhyped pockets than Undervalued assets.
As they say, A bear market is the real test of your strategy and behaviour.