H2 2025 Stock Market Outlook: Sectors To Buy, Avoid And Watch Closely Amid US-India Trade Talks

Investors are looking for clarification on how to navigate the markets in light of the uncertain environment caused by the India-US tariff negotiations and global geopolitical developments. This is particularly pertinent considering the strong DII inflows that counteract continuous FII selling. In light of softer US inflation data and a downturn in the US 10-year bond yield, which reflects confidence for a rate cut at the September policy meeting, investors' main concerns now include possible portfolio restructuring, determining resilient sectors, and comprehending key market triggers for the second half of 2025.

So, based on an interview with Mr. Romil Jain, Deputy CIO & Fund Manager at Electrum Portfolio Manager, the article analyzes how export-dependent industries are giving way to domestically focused ones, how small-cap firms are once again appealing to foreign institutional investors (FIIs), and the major macroeconomic variables that will influence the investment environment, notably the US-India trade agreement and global demand.

1)​ With ongoing India-US tariff negotiations, do you see a requirement for restructuring the portfolio? and are there any export-dependent sectors that are more vulnerable or better placed?

Ans: Over the last few months, we have reduced exposure to export-oriented sectors to some extent and replaced them with a group of broadly based domestic-oriented sectors and stocks. We still have a small portion of export sectors however not very meaningful exposure.

2) With foreign institutional investors pulling back, which sectors are demonstrating resilience or becoming attractive for fresh inflows?

Ans: Our target areas of investments are small-cap stocks where the presence of FII's is nearly non-existent. However, we believe some of the structural stories like consumer discretionary including auto, pharma, IT and sectors with sustainable earnings growth, will be on FII's radar and may attract flows.

3) Looking ahead, what are the key market triggers and macroeconomic cues that could shape the second half of 2025? Are there any red flags or contrarian opportunities investors should consider?

Ans: Key market triggers and some of the cues that need to be considered are mainly US India trade agreement and where the tariff rate for India settles, as well as geopolitical events globally. Further, how the demand environment shapes up globally will be a key to determining investment opportunities.

We believe any sector with strong narratives without structural growth opportunities, coupled with higher valuation, as well as segments of markets where too much is priced too soon should warrant caution.

4) Given the mixed global economic signals and global uncertainties, what's your advice on strategic asset allocation-how can retail and HNI investors balance growth and defensiveness?

Ans: In terms of asset allocation, investors can have a mix of equity, debt and gold. However, with strong opportunities seen in equities we believe a larger portion can be allocated in equities. Further, we believe a good way to balance growth and defensiveness would be to have a mix of some compounding businesses with leadership in their domain, along with some stronger growth and turnaround opportunities too. Our portfolio is also positioned with a similar strategy.

5) The pharma sector has been outperforming lately - do you see this momentum sustaining in H2 2025, or are there valuation or regulatory headwinds investors should watch for?

Ans: Pharma sector is expected to do well over the medium to long term. We also expect CDMO/CMO segments to deliver stable growth over the long term, with opportunities such as China plus one. Regulatory headwinds like audits, product approvals, product delays etc are a part of the sector and may positively or negatively impact the constituents of the sector. Currently pharma sector is also in the middle of tariff-related uncertainty, which needs to be watched out.

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