Market volatility ahead? Watervield’s Vipul Bhowar on sectors, valuations and what to buy

In a year characterized by global trade tensions, delayed reductions of the FED rate and domestic uncertainties, investors are looking for clarity and conviction. To decode the current market mood and the road, ETmarkets spoke with Vipul Bhowar, Senior Director & Head to shares at Waterfield Advisors.

From the shifting portfolio strategies of HNIS and family firms to the prospects for Mid and Smallcaps, Bhowar offers deep insights into how income, sector rotations and alternative investments in 2025 form the capital allocation.

Fragments:

Property on the stock market: volatility or opportunities?

V. A lot happens in the markets – geopolitical tensions, problems with a trade rate and domestic triggers. Is the recent correction a sign of deeper volatility?

Vipul Bhowar: Equity markets follow income. The recent volatility stems from a profit delay. But in our investable universe of ~ 5,000 companies we still see a double figures in profit growth. That is why markets recovered in March – May. The interest rate reduction of the RBI also helped, reducing the capital costs while the income improved.

However, the new rates of 25% (a 10% increase) can introduce sector -specific volatility. But markets rarely fall twice for the same reason. If the income continues to grow, what the current trends suggest, the market must be in force. The volatility will probably be limited to a few sectors.

Portfolio Shifts: How HRIS & FAMILY BEACHES ARE ARE AREASED

V. How do rich investors change who shift exposure to activa classes?

Vipul Bhowar: Three years ago, portfolios were usually split 50:50 between equity and fixed -income income, with shares skewed to large caps. Nowadays we see a split of 70:30, more tilted to shares and quasi-equity products such as Reit’s and Invites. The non-equity bucket is where most changes take place. Investors increasingly grant capital to equity or near-share instruments, and this trend continues.

Midcaps, Smallcaps & Sector Rotation: What is overheated?

V. Are MidCaps overheated? Where does the smart money move?

VI: Middle caps look expensive with valuation averages. But balances are the most beautiful we have seen in 25+ years, especially in terms of median debt-to-equity. Most Capex takes place in the Mid and Smallcap sectors such as energy and real estate – not large caps.

So although MidCaps look expensive at first sight, the underlying growth and Capex justify current ratings. That said, the broad rally in mid and smallcaps has been done. Expect stock and sector-specific movements in the future.

Fiis, Fed Cuts & Global Signues

V. FIIs have achieved 26,000 – RS 27,000 crore in just 10 days. Why the Exodus?

VI: Although FIIs sell on the secondary market, they are active in the primary market, especially IPOs. They leave old economy shares that grow in the nominal GDP and rearrange to sectors that show higher growth.

As far as the FED is concerned, recent data from the US indicates an economic delay. Previously the chance of an interest rate reduction of September was 41%. That has now risen to 80-90%. When the rate reductions take place, FIIs return to emerging markets such as India.

Rise of Alternative Investments: AIFS, Private Credit & More

Neha: How do Indian investors respond to alternative investment products?

VI: The behavior of investors has changed considerably. We have created a “growth pool”, ~ 10% of the portfolios, consisting of private equity, venture debts and private credit. Customers are willing to lock up for 10 years of capital in exchange for a higher return.

This 10% is now being discussed; Many want to increase it to 15%. We are also assigned to pre-ipos, non-listed opportunities and high-interest strategies. With fixing less attractive, the interest in these strategies increases.

How to invest in the rest of 2025

V. We are in the second half of 2025. What is your advice for new investors? What should they expect?

VI: The access values are high, market capitalization to GDP is 130% compared to the 20-year average of 90%. Do not expect 25% CAGR as in the past five years.

We recommend using capital in tranches for more than 6 months. For FY26, Nifty EPS is expected on RS 1,200 – which implies the real value of ~ 24,000 at 20x PE. For FY27, based on RS 1,300 EPS, Nifty ~ could be 26,000. Markets act in this expected reach.

Hold a mix of large, middle and smallcap based on your risk profile. Assign more to large caps and balance the rest accordingly.

Sectors to look at: themes within themes

V. Which sectors look promising?

VI: We see strength in “sectors within sectors.” For example:

• Financial data: Lending is consolidating, but non-loans, insurance, capital markets, performing well.
• Tech: Traditionally it is slow, but digital technology (for example Swiggy, forever) is growing.
• Healthcare: Pharma has uncertainties, but hospitals are doing well.
• Real estate accompanying: Real estate stocks have been collected, now we like associated electric goods, brand electronics and defense.

These bags show consistent double digits and earn a capital allocation.

V. Is this a “buy-the-dip” market? Some caution for investors?

VI: Yes, buy the dip works, but take a long-term image. Jojy does not chase back. Consolidate markets after a large rally that is healthy. Continue to use capital, participate in volatility and do not respond to emotionally to short fluctuations.

(Disclaimer: recommendations, suggestions, views and opinions of the experts are their own. These do not represent the views of economic times)