In an interview with ETMarkets, Mishra said: “Metals and autos are the clearest to avoid —trade wars and demand woes make them dead weight. Realty and durables lack momentum, while small/midcap cyclicals remain a trap without liquidity or earnings support,” Edited excerpts:

The month of February started on a volatile note with Budget 2025; since then, we have been on a losing streak. The index fell nearly 6% in February – the worst monthly decline since the Covid 2020 rout. What is your take on markets?
The ongoing correction is driven by a mix of valuation concerns, muted earnings growth, and global macro uncertainties. Rising geopolitical tensions and the risk of a potential trade war have further exacerbated investor caution.Additionally, corporate earnings have largely underwhelmed, leading to a recalibration of growth expectations. The sharp correction in small and midcap stocks highlights the broader risk aversion in the market.While near-term sentiment remains weak, the long-term structural growth story remains intact. Historically, such corrections have paved the way for consolidation and eventual recovery, providing selective opportunities for investors with a medium- to long-term perspective

Are we now in a fair value zone after the recent fall seen in markets, or are there chances of further decline?
The recent correction has brought large-cap indices closer to fair value, while small and midcaps remain under pressure due to liquidity-driven selling. Valuations have moderated, but further downside is possible if global risk-off sentiment persists.Nifty’s P/E has corrected from ~24x in early 2024 to ~19.5x on a one-year forward basis, aligning with its 10-year average. While this suggests improved valuations, markets often overshoot before stabilizing.

The ~20% correction from peak levels is notable but not unprecedented—past downturns, including the 2008 crisis, saw steeper declines before recovery. While valuations are more reasonable now, calling a bottom remains premature.

A selective approach is prudent—favoring quality large-caps and defensive sectors—until clearer stabilization signals emerge, such as easing FII selling, Fed policy clarity, and India’s Budget 2025.

Small & Midcaps are already in a bear market – how should one play this theme in 2025?
Small and midcaps are in a bear market, with Nifty Midcap 100 down ~23% and Smallcap 100 down ~25% from peak levels. The correction, driven by FII outflows, high valuations, weak earnings, and macro uncertainties, has reset valuations but further downside remains possible.

In my view avoid overleveraged cyclicals until earnings recover. Small & midcaps are a “buy-on-dips” play, not a “buy-now” bet. Valuations are improving, but momentum hasn’t turned. Accumulate via SIPs & defensives, keeping 20–30% liquidity for better opportunities in 2Q/3Q 2025.

FII exodus continues in February. They have pulled out more than Rs1.1 lakh crore from Indian equity markets (net investment) in the first two months of 2025, NSDL data showed. Where do you see the trend moving in the next few months?
FII Outflows slowing but not fully reversing. FIIs have already cut their equity assets under custody by 5% drop, and their ownership is at a decade-low 16%.

This suggests the heaviest selling might be behind us, but a return to net buying needs clearer catalysts—earnings recovery, softer U.S. yields, or policy clarity.

Nifty could bottom around 21,500–22,000 (another 5–10% down) before stabilizing, assuming DIIs maintain their ₹80,000–100,000 crore annual inflow pace.

The wild card is Trump’s trade policies and their ripple effects. If tariffs disproportionately hit China, India could see tactical inflows sooner.

Conversely, a broader EM sell-off could push outflows past ₹1.5 lakh crore for 2025. Watch FII activity in March—net buying for 10+ sessions or a halt in small/midcap dumping could signal a turn.

I am sure you must be getting a lot of queries. What are you telling your clients at this point in time?
We are advising clients to remain patient and avoid panic selling. Market corrections are normal, and those with a long-term horizon should view this as a buying opportunity.

However, caution is advised in high-beta stocks, and investors should focus on companies with strong balance sheets and stable earnings growth.

Earnings have not been great for India Inc. and trade war fears are slowly becoming a reality. Are we ready for another weak quarter(s) of earnings growth? How much time will it take for things to adjust to the new normal?
Indian corporate earnings remain sluggish, with 3QFY25 marking the third straight quarter of single-digit profit growth (~5% YoY). Demand slowdown, high inflation, weak wage growth (2%), and FII outflows are key drags. Approx 50% of Nifty 50 companies missed estimates, with cement, oil & gas, and FMCG leading declines.

India Inc. faces 1 – 2 more weak quarters before stabilizing. If domestic policy offsets trade shocks, a late-2025 recovery is possible. Otherwise, expect a prolonged adjustment till mid-2026. Watch Q4 results & U.S. trade moves as they’ll set the pace.

What is causing the fall in the rupee against the USD? Yes, growth has taken a hit, but I hope it is not all domestic factors.
The rupee is weakening due to multiple factors, including FII outflows, a strong US dollar, and higher crude oil prices. The rupee’s record low of 88/USD stems from global and domestic factors.

The strong U.S. dollar, rising U.S. Treasury yields, and Trump’s tariffs have triggered FII, weakening the rupee. Other emerging market currencies—rupiah (-10%), baht (-8%), and rand (-7%)—are also sliding, signalling a global trend.

Domestically, slowing GDP growth, weak wage growth (

The RBI has spent $45 billion defending the rupee, but with forex reserves now at ~$650 billion, intervention is shifting toward managing volatility rather than defending a level.

Short-term, the rupee could test 89–90/USD if outflows persist or oil spikes to $85+. Stabilization depends on Fed policy, U.S. tariff clarity (mid-2025), and India’s Budget 2025 attracting FDI.

Additionally, global risk aversion and geopolitical uncertainties have led to capital flight from emerging markets, putting further pressure on the rupee.

Which sectors should one consider deploying cash in 2025?
With the Indian market facing FII outflows, a weakening rupee (88/USD), and slowing earnings (5–7% in Q3FY25), cash deployment requires caution and selectivity. Sectors like banking, IT, capital goods, and infrastructure could see strong tailwinds.

With interest rate cuts expected in the coming quarters, rate-sensitive sectors such as real estate and autos could also benefit. Defensive sectors like FMCG and healthcare may offer stability.

Which sector(s) should one consider paring stake or positions?
Metals and autos are the clearest avoid —trade wars and demand woes make them dead weight. Realty and durables lack momentum, while small/midcap cyclicals remain a trap without liquidity or earnings support.

The Nifty might test 21,000–21,500 (5-10% down), but these sectors may fall harder (15–25%).

What is the best strategy to play the market, especially for first-time investors who might be seeing their portfolio in the red probably for the first time since COVID?
First-time investors should avoid panic selling and focus on long-term wealth creation. SIP investments should continue, as market downturns provide a good opportunity to accumulate units at lower prices.

Portfolio diversification is key, and investors should prioritize high-quality large caps over speculative small caps.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)