Cautious optimism for 2025? Here are the sectors on which investors can focus

2024 is about to end with about 10 per cent returns for the investors, who shall be keenly looking at 2025 with a lot of hopes and optimism for their portfolio delivering healthy gains for the investors. Market participants suggest investors to focus on diversification and balance in their portfolio to achieve long-term goals.

Market experts believe that 2025 will be a challenging year for investors, who will need to navigate through uncertainties at both domestic and global levels. However, they foresee opportunities in select pockets, which have the potential to deliver strong returns to investors, alongside some allocation in fixed asset income and gold.

High-quality stocks with strong fundamentals should be the focus of investors this time around, particularly in banking, consumer and technology, said Jathin Kaithavalappil, Assistant Vice President at Choice Broking. "Adding defence and pharma counters, selective railways should be also kept in mind for the balance," he added.

Saurabh Jain, Managing Director & Head of Wealth Solutions at Standard Chartered Bank, India sees bonds as core holding (neutral) and expect it to beat cash returns, supported by bond yields declining over the next 12-months, said Gold remains a core holding and a key portfolio hedge against escalating geopolitical tensions, rising inflation or growth slowdown, he said.

"Within bonds, we are Overweight medium-and-long maturity bonds, the higher carry yields on offer provide adequate compensation for extending maturity in fixed income allocations, while increasing the potential for price gains as yields decline over the next 3-6 months," Jain from Standard Chartered Bank adds.

Investors should design their portfolio by keeping risk to reward ratio in the mind, said Narendra Solanki, Head Fundamental Research - Investment Services, Anand Rathi Shares and Stock Brokers.

"These can be possible by diversifying their funds in quality stocks of large cap, midcap and small caps. One should rebalance or add additional funds in their portfolio whenever they see any opportunity or dips in any of those spaces," he suggested.

Factors including rate cut cycles, Trump's geopolitical strategy, India's economic indicators, upcoming Union Budget are expected to significantly influence the Indian markets in the coming year. Thus, analysts are suggesting a cautious approach for the investors during the tough times.

Surjitt Singh Arora, Portfolio Manager - PMS at PGIM India AMC suggested that investors should Evaluate funds on their merit with long term track record, risk profile, churn ratios, and more. "One should have a mix of equity, debt and commodities in your portfolio which will help you achieve the benefit of diversification," he said.

Ajit Mishra, SVP- Research at Religare Broking advised investors to carefully align their portfolio with their financial goals, risk tolerance, and time horizon. "Prioritizing diversification and increasing exposure to defensive sectors can help mitigate risks and safeguard investments during periods of heightened uncertainty," he said.

Markets are never static, they are in a perpetual state of flux. Despite all challenges, investors need to strike for a balanced portfolio, well-diversified across asset class, sector and market capitalisation.

Indian equities have delivered the best returns in the long run among all asset classes, said Shruti Jain, Chief Strategy Officer, Arihant Capital Markets. They have persistently outpaced their global peers. Given how dynamic the world has become, investors will also need to take a dynamic approach when it comes to portfolio construction, she said.

"No single portfolio can perform across different scenarios and the rapid pace of change. For evolved investors, taking a tactical view can be rewarding. One key thing to remember, it is time to view data from a transformation lens, not the one of a business cycle and stay focused on long-term fundamentals," Jain added.

Coming on the back of 2 strong year of returns in the market, we believe that a bottom-up approach strategy is more likely to be effective in the year 2025, said Shiv Chanani, Senior Fund Manager - Equity Baroda BNP Paribas Mutual Fund "Investors need to be mindful that the world is not more dynamic and volatile and they would need to be nimble in their asset allocation," he said.