As the Indian equity markets prepare to close 2024 with positive returns, marking the ninth consecutive year of growth, investment experts are analyzing the implications for the upcoming year. According to a report by Standard Chartered Bank, this represents the longest streak of annual gains on record for Indian markets. The year 2024 was characterized by two distinct halves: the first half showcased strong growth driven by robust economic activity and solid corporate earnings, while the second half faced volatility due to slowing economic growth and high interest rates. The Reserve Bank of India (RBI) has been focused on curbing inflation and managing credit risks during this turbulent period [95d19b6b].
However, the Economic Survey for 2024-2025 raises concerns about a potential correction in 2025, primarily due to elevated valuations in the US market, which constitutes 75% of the MSCI World Index. This situation poses risks for the Indian market, as historical data indicates that declines in the S&P 500 often precede drops in the Nifty 50 [79cfa30d]. Investment experts like Anirudh Garg from Invasset PMS have previously emphasized the importance of capital preservation in light of significant declines in indices like the BSE Sensex and NSE Nifty, which have dropped over 10% since their peaks in September 2024. Garg advocates for focusing on stable sectors such as Pharmaceuticals (Pharma) and Fast-Moving Consumer Goods (FMCG) for more reliable returns amidst economic uncertainty [a0a7cfb8].
Dhiraj Agarwal, Managing Director of Ambit Investment Managers, warns of a challenging year ahead in 2025, citing a significant slowdown in earnings growth—the sharpest decline since the Covid-19 pandemic. He notes that earnings cuts have followed the September quarter, and while government spending post-elections may provide some relief, it is unlikely to offset the broader economic challenges. Agarwal points out that revenue collections for the current fiscal year have merely met expectations, and food inflation is impacting consumer demand, complicating the economic outlook [a0a7cfb8].
Despite these challenges, Agarwal identifies potential opportunities within the IT sector, particularly among second-tier companies and those focused on the US market. He also sees promise in pharmaceuticals with US exposure. Additionally, segments such as air conditioners, jewelry, and selective retail are performing well, even as overall consumption weakens. The banking sector, while experiencing a slowdown in credit growth, shows resilience, suggesting that certain areas may still offer investment potential [a0a7cfb8].
In a more optimistic view, Deepak Shenoy, founder and CEO of Capitalmind, predicts significant growth for India's mid and large-cap stocks as the economy expands. He notes that India's large-cap stocks are currently at mid-cap levels compared to the US market, indicating room for growth. Shenoy expresses optimism for sectors like defense-based manufacturing and financial infrastructure, anticipating a current account surplus in the next decade. He highlights recent mid-cap rallies and increased government capital expenditure as positive growth signals. Trading activity is expected to rise in January 2025 due to corporate results and upcoming budget announcements, although he warns of potential market corrections [a0a7cfb8].
Adding to the positive outlook, a recent report by Morgan Stanley projects an 18% gain in the BSE Sensex by December 2025. The report attributes this expected growth to macroeconomic stability, fiscal discipline, and robust private investments. Morgan Stanley emphasizes that India maintains a positive gap between real economic growth and real interest rates, with key drivers including a stable macroeconomic environment, no anticipated US recession, benign oil prices, modest interest rate reductions, and strong retail participation. Furthermore, Sensex earnings are expected to grow at an annual rate of 17.3% through FY2027, which is 15% higher than market consensus. This positions India as an attractive investment destination due to strong corporate earnings growth and a favorable policy environment [c17e402d].
Recent data indicates that the Indian markets are becoming less sensitive to US market volatility, with the Nifty-50 index showing reduced correlation to the S&P-500. The Economic Survey has highlighted the growing role of retail investors, whose participation surged from 4.9 crore in FY20 to 13.2 crore by December 2024. This increase in retail investor engagement has contributed to a significant rise in household wealth in capital markets, which has exceeded ₹40 lakh crore over the past five years. However, new retail investors may lack experience with market corrections, raising concerns about their preparedness for potential downturns [490bac8e][79cfa30d].
Garg's earlier insights align with Agarwal's analysis, as both emphasize the need for a cautious and balanced investment approach. The recent trend of Foreign Institutional Investors (FIIs) selling shares worth over Rs 1 lakh crore since October has raised concerns about market sentiment, but Garg believes that the return of FIIs could be possible within the next 6 to 12 months if macroeconomic indicators improve. Both experts underscore the importance of focusing on sectors that promise resilience and stability, particularly as the market navigates through these uncertain times [a0a7cfb8].