Due to its strong macroeconomic foundations, the Indian stock market is poised for healthy growth on a medium-to-long term. Experts believe that the sustainability of growth, the revival of corporate earnings and government policies, as well as global factors such a geopolitical struggle, US Fed interest rates trajectory, and Donald Trump’s tariff policies, will determine the market trends for 2025.
Indian Stock Market Benchmark Nifty Fifty is expected to end 2024 with modest gains. This index has risen by 9 percent so far this year. The index gained 20 percent last year.
The Indian market could see modest gains in the year ahead, unless corporate earnings and the economy show a significant rebound.
The market will be triggered by "sustained economic growth and strong corporate earnings. Measures announced in the budget for next year and the direction of taxation." Geopolitical stability and interest rate decisions made by the major central banks will play a crucial role. Trilok Agarwal said that Donald Trump's tariffs and taxes will alter the dynamics of supply chains.
The risk of a global economic recession and inflationary forces could also affect the market's sentiment. A dynamic relationship between China and the US may also cause volatility. "Individual factors such as regulatory uncertainty and currency fluctuations due to the US dollar's exchange rate against emerging market currencies could affect the direction of foreign investments in India," stated Agarwal.
The Indian stock market 2025: Key challenges
The Indian stock exchange faces a number of challenges, including a slowdown in the global economy and inflated valuations.
Even though earnings for corporations have been declining in recent quarters, there are still pockets of the Indian Stock Market that remain highly valued.
"The key trigger for FY2025 is a growth revival in consumption and investment." Amit Ganatra is the Head of Equities at Invesco Mutual fund. He said that key challenges are a weak growth environment globally and high valuations.
Another key risk to the Indian stock exchange is the growing comfort level of domestic investors in equities.
"While the US has been accused of being an exception, India's growth trajectory is structurally strong because it has better macroeconomic fundamentals. (current account deficits, fiscal deficits, inflation). The growing confidence of domestic investors in equities, particularly when there is no down year, as 'risk free' assets poses a threat. Investors must remain vigilant and avoid overlooking potential risks. This is what S Naren, ED & CIO of ICICI Prudential AMC said.
Naren also highlighted the fact that small and midcap stocks have consistently outperformed large-caps over the past few years despite doubts about their valuations. Naren noted that the FII's selling of large-cap stocks has contributed to this trend. However, small and midcaps are still overvalued, and have yet to correct themselves.
What should Indian investors be doing?
Investors are advised to focus on the long-term fundamentals, and pay attention to market sentiment and valuations. Diversifying portfolios is also recommended to reduce risk.
Multi-asset strategies offer a great way to manage risk and diversify. "Hybrid funds that offer exposure to equities and debt as well as commodities such gold provide a balanced asset allocation. This makes them an attractive option for investors who want to diversify their assets across asset classes," Naren explained.
Experts see potential in the IT, FMCG, and infrastructure sectors.
Deepak RAMARAJU, Senior fund manager at Shriram AMC is optimistic about the FMCG industry due to its attractive valuation.
Ramaraju stated that the IT sector could also perform well in 2025, as discretionary spending increases. This is provided Donald Trump doesn't impose unexpected tariffs.
Ramaraju said that banks may also see a recovery following the interest rate cut, which could result in an increase in credit growth.
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