2024: A Yr of Milestones and Relative Market Resilience Amid Challenges:
The yr 2024 was a outstanding one for Indian and international fairness markets. The Indian inventory market achieved a historic milestone on twenty sixth September 2024, when the Nifty 50 index reached an all-time excessive of 26,216. This pushed India’s market capitalization past $5 trillion for the primary time, making it the fifth-largest market globally. Nonetheless, the market’s journey all year long was divided into two distinct phases.
Within the first half of 2024, Indian equities delivered sturdy returns, pushed by favorable macroeconomic situations, coverage continuity, sturdy home and international liquidity, constructive high-frequency financial indicators, and sustained company earnings momentum. In distinction, the second half of the yr was marked by heightened volatility. Elements such because the ruling celebration’s underwhelming efficiency within the normal elections, a slowdown in financial indicators, weaker earnings development, and international investor outflows as a consequence of valuation issues weighed available on the market. Moreover, rising U.S. bond yields, a stronger greenback, and renewed competitors from China created additional stress.
Regardless of these challenges, Indian equities demonstrated resilience. Broader market indices outperformed, with Midcap and Smallcap indices surging by greater than 20%, respectively, whereas the Nifty 50 posted a extra modest acquire of 8.8%. Nonetheless, the derivatives market confronted important setbacks. Regulatory adjustments, together with larger margin necessities, lowered expiry days, and a rise within the Securities Transaction Tax (STT), rendered choices buying and selling unviable for a lot of contributors. These adjustments pushed some merchants towards unregulated platforms, whereas others shifted their focus to positional trades or thought-about relocating to markets with extra favorable situations.
The derivatives market’s decline was compounded by liquidity challenges and elevated volatility. Skilled merchants largely exited the area, and retail participation shifted to casual buying and selling avenues, with every day volumes in these platforms reportedly hovering to unprecedented ranges. This transition considerably impacted the general market dynamics, leaving the derivatives section a shadow of its former self.
In December 2024, the Indian inventory market mirrored international developments, with large-cap indices such because the Nifty 50 and Sensex declining by 2%, in step with the two.4% drop within the S&P 500. Nonetheless, midcap shares edged up by 1%, and small caps remained largely flat. The broader market’s blended efficiency underscored the resilience of particular segments amidst broader market corrections.
Sectoral efficiency
In 2025, India’s consumption sector is about to thrive, pushed by rising incomes and urbanization, with client durables, FMCG, and e-commerce main the best way. Healthcare stays sturdy, supported by elevated well being consciousness and export demand for prescribed drugs and generics. Banking and monetary companies are poised for development, fueled by sturdy credit score demand, digital innovation, and monetary inclusion. The IT sector continues to learn from international digital transformation developments, together with AI and cloud companies. Capital expenditure-linked sectors like infrastructure and manufacturing are more likely to acquire from rising investments, whereas banking emerges as essentially the most undervalued massive sector amongst Nifty indices.
Within the following sections, we offer a extra complete examination and detailed insights of some main sectors:
Auto:
The Indian auto sector is predicted to navigate a blended efficiency trajectory in 2025, influenced by numerous developments throughout its segments. In December 2024, passenger car (PV) gross sales grew 15-17% year-on-year (YoY) however declined 7-9% month-on-month (MoM), with development largely pushed by demand for entry-level and mid-segment autos. Conversely, industrial car (CV) gross sales rose modestly by 4% YoY and 13% MoM, although a excessive base impact and average substitute demand are more likely to restrict development in FY25.
The 2-wheeler (2W) section posted a 12.6% development in home gross sales throughout Q2FY25, with exports displaying notable energy. Nonetheless, general volumes stay under pre-COVID ranges. Elements corresponding to rural demand restoration and new product launches are anticipated to assist double-digit development within the section. In the meantime, the tractor business displayed resilience, with December 2024 volumes rising 16% YoY, pushed by sturdy rabi sowing, kharif crop procurement, and improved water reservoir ranges.
Margins throughout the sector confronted stress in Q2FY25 as a consequence of operational inefficiencies, larger discounting, and decrease home wholesale volumes, leading to largely flat EBITDA margins YoY and a 32bps decline quarter-on-quarter. Whereas margins are anticipated to stabilize within the close to time period, any enchancment will hinge on a richer product combine.
Given the present panorama, the auto sector is poised for consolidation within the quick time period, with a cautiously optimistic outlook supported by gradual restoration in exports and sustained rural demand.
Banking:
The Indian banking sector is predicted to expertise regular development in 2025, with credit score development projected to stabilize at round 11-12% for the fiscal yr. Following a sturdy efficiency in FY24, the place credit score development reached roughly 14% YoY, the sector is now shifting in the direction of extra cautious lending practices. A slowdown in unsecured lending segments, significantly in bank cards, private loans, and microfinance, is anticipated as a consequence of ongoing asset high quality issues. Retail and SME sectors are more likely to proceed driving development, whereas company lending, particularly to massive corporates, might stay subdued as a consequence of aggressive pricing pressures.
Deposit development has proven enchancment, supported by positive factors in each CASA and time period deposits, as banks give attention to sustaining balanced loan-to-deposit ratios (LDRs). This strategy goals to optimize price of funds, particularly in anticipation of a possible charge reduce within the subsequent 6-9 months. Internet curiosity margins (NIMs) are anticipated to stay steady, with any important adjustments depending on the rate-cut cycle. Banks with a bigger share of repo-linked loans might expertise extra pronounced margin stress in comparison with these with larger proportions of fixed-rate or MCLR-linked loans.
Total, whereas challenges in unsecured lending and asset high quality stay, the sector is poised for regular development pushed by retail and SME credit score demand, with banks sustaining a cautious however optimistic outlook. The give attention to CASA deposits, prudent lending, and stability in margins will doubtless assist the sector’s efficiency in 2025.
Chemical compounds:
The chemical sector is more likely to see a blended efficiency in 2025, with pricing developments anticipated to stay steady after the sharp highs of the Covid interval. Crude worth fluctuations are anticipated to maintain costs in a range-bound sample. Whereas general pricing stays subdued, sure segments, significantly pharmaceutical APIs and CDMOs, are experiencing sturdy development. Home market rules, together with anti-dumping investigations and minimal import worth (MIP) impositions, might defend native producers from unfair pricing practices.
Globally, chemical demand stays gradual, with slight upticks within the US. Whereas it’s too early to declare a chemical upcycle, the top of the destocking section and a possible re-stocking cycle might supply assist, relying on demand momentum. Logistical challenges, together with rising freight prices and labor strikes, proceed to disrupt provide chains, however these are anticipated to be short-lived.
Indian chemical corporations are anticipated to carry out higher in 2025, as demand improves and the destocking section fades. The sector’s outlook is cautiously optimistic, with development prospects pushed by elevated manufacturing, R&D, and product diversification. Firms specializing in area of interest segments, backward integration, and increasing their choices stand to learn from shifts in international provide chains.
Software program:
The Indian IT sector confirmed early indicators of restoration in Q2FY25, with a marginal enchancment in demand. Nonetheless, development is predicted to average in Q3FY25 as a consequence of seasonal furloughs and typical year-end softness. A key problem for the sector is the absence of mega-deals, with growing competitors from international friends. After a interval of sturdy development in FY22 and FY23, Indian IT companies are more likely to face short-term demand and margin pressures as a consequence of macroeconomic uncertainties and a weaker outlook.
Regardless of these challenges, the long-term outlook for the sector stays constructive, supported by indicators of financial restoration. Expertise spending is predicted to choose up within the second half of FY25, significantly in core modernization, cloud, information companies, and monetary companies, though the manufacturing sector stays weak. The BFSI section emerged as a vivid spot in Q2FY25 and is predicted to keep up its momentum in Q3FY25, pushed by elevated tech spending by monetary establishments.
Tier-2 IT corporations may outperform their bigger counterparts this quarter, whereas pricing pressures and shifts in income composition might put pressure on margins. Nonetheless, a cautious hiring technique and enhancements in demand, together with a good USD-INR change charge, ought to assist mitigate margin pressures. Because the sector adapts to rising developments corresponding to Generative AI, corporations should give attention to strengthening their place in digital transformation. The important thing to development will lie in adapting to market shifts and leveraging new alternatives within the know-how panorama.
Vital occasions & updates
Just a few essential occasions of the final month and upcoming ones are as under:
- In November 2024, India’s infrastructure output noticed a notable improve of 4.3% year-on-year, surpassing the revised 3.7% development recorded within the earlier month. This marks the very best development charge within the final 4 months.
- In December 2024, the HSBC India Manufacturing PMI declined to 56.4 from 56.5 in November, marking the weakest enlargement of the yr. Development slowed in output, new orders, and purchases, however general enlargement remained sturdy.
- India’s deposit development stood at 11.5% in December 2024, in comparison with 10.7% in November 2024.
- The HSBC India Companies PMI for December 2024 was revised to 59.3, down from 60.8, however remained larger than November’s 58.4. This marked the forty first month of development, pushed by stronger demand and a notable rise in new orders.
- The HSBC India Composite PMI for December 2024 stood at 59.2, barely under the flash estimate of 60.7 however larger than November’s 58.6. It marked the forty first consecutive month of development in non-public sector exercise, with companies main the rise, whereas manufacturing unit manufacturing development softened.
- India’s financial system is projected to develop by 6.4% in FY24/25, down from 8.2% within the earlier yr. This slowdown is attributed to weaker development in capital formation and inventories, regardless of stronger non-public and authorities spending. Exports grew by 5.9%, whereas imports contracted by 1.3%.
Basic outlook:
India continues to differentiate itself as a steady and resilient financial system amid international volatility, benefiting from sturdy political stability following state elections and anticipated fiscal measures which might be more likely to bolster investor confidence. As we stay up for 2025, the outlook stays optimistic, with development anticipated to choose up momentum within the coming quarters. FY26 is anticipated to outperform FY25, pushed by fiscal stimulus, a revival in non-public capital expenditure, and enhancing credit score situations following current coverage changes.
The earnings outlook is constructive, with Nifty 50’s earnings projected to extend by 7.6% in FY25, adopted by a stronger development of 13.7% in FY26. Over the interval from FY23 to FY27, the compounded annual development charge (CAGR) for earnings is estimated at 14%. Whereas potential dangers corresponding to international financial uncertainties, inflation pressures, and earnings changes in Q3FY25 exist, India’s underlying development story, pushed by steady political management and structural financial benefits, stays intact. When it comes to market sentiment, 41% of shares within the NSE 500 are buying and selling above their 200-day transferring common, which displays a shift from the overbought ranges noticed earlier within the yr.
The Indian market is predicted to stay range-bound as we enter January 2025, influenced by exterior elements, together with US financial insurance policies and international market dynamics. Domestically, the Union Price range and potential RBI charge cuts will probably be key areas to observe. With actual GDP development forecasted at 6.4% for FY25 and nominal GDP development at 9.7%, the Indian financial system is poised to keep up its development trajectory, supported by sturdy home demand and favorable fiscal and financial insurance policies.
Technical outlook.
From a technical perspective, the Indian market is at the moment in a consolidation section. As of December 2024, solely 41% of shares within the NSE 500 are buying and selling above their 200-day transferring common, down from the overbought ranges of 85-90% seen in early This autumn. This implies that the market has shifted from an overbought to a extra balanced and even oversold place, with current corrections primarily pushed by international elements corresponding to rising US bond yields and a stronger greenback.
Looking forward to January 2025, the market is more likely to expertise continued volatility, largely influenced by international developments, together with the US Federal Reserve’s financial coverage and different key financial occasions. Nonetheless, a lot of the damaging sentiment has already been priced into the market, and the main target is more likely to shift towards home elements such because the upcoming Union Price range and the potential for RBI charge cuts. These developments, mixed with fiscal assist, capex revival, and an enhancing macroeconomic atmosphere, might assist stronger market efficiency in FY26. We count on earnings development of 15%-16% for each Calendar 2025 and FY26, which might probably result in a re-rating of the market, with a better PE a number of pushed by renewed FII inflows and improved market situations.
Outlook for the International Market
US Market:
In 2024, US inventory traders noticed outstanding positive factors, pushed by a mix of stable financial enlargement, falling inflation, and a sequence of rate of interest cuts from the Federal Reserve. The tech sector, significantly fueled by the AI increase, led the cost, with the NASDAQ up by 34%, the S&P 500 gaining 28%, and the Dow Jones Industrial Common advancing by 16%. Whereas bond markets noticed restricted positive factors, the fixed-income area remained risky as a consequence of shifts in financial coverage.
As we stay up for 2025, the outlook for US markets seems extra subdued. Whereas financial development stays sturdy, a good portion of the optimism has already been mirrored in inventory costs, significantly inside the know-how sector. Company earnings in This autumn 2024 will doubtless face challenges in exceeding excessive expectations, particularly given the uncertainty surrounding President-elect Trump’s proposed insurance policies. His tax reforms, together with a company tax charge reduce from 21% to fifteen%, might add stress to the US funds deficit, whereas tariffs on international imports, significantly from China, might reignite inflation.
The Federal Reserve’s shift in the direction of a extra impartial stance in 2025, as core inflation reaches nearer to its goal, is more likely to mood financial development, which is predicted to stabilize round 2.0%. Though the central financial institution is anticipated to ease charges progressively, the bond market might proceed to face headwinds, with the 10-year US Treasury yield anticipated to rise above 5.20%. This may occasionally dampen investor sentiment in the direction of equities and improve borrowing prices, which might additional weigh on market efficiency.
Labor market challenges proceed to be a big concern for companies, with shortages, hiring difficulties, and retention points topping the checklist. Whereas inflation has moderated general, companies inflation stays stubbornly excessive, significantly in sectors like healthcare and monetary companies. Trump’s administration might stimulate development in cyclical and home sectors, however the dangers related to commerce tariffs and immigration insurance policies might provoke stagflationary pressures, compelling the Fed to rethink its coverage stance if the financial system reveals indicators of weakening.
Given these situations, though alternatives stay, particularly in sure sectors, warning is advisable for 2025. The market is predicted to stay risky, and traders ought to undertake a diversified and balanced strategy.
Outlook for Gold
Gold costs in India have been rising steadily, with 24K gold nearing Rs 79,000 for 10 grams, whereas 22K and 18K gold are priced above Rs 72,000 and Rs 59,000 per 10 grams, respectively. The beginning of 2025 has seen continued momentum for gold, with MCX bullion approaching Rs 78,000 within the commodities market. Nonetheless, short-term volatility persists, reflecting broader market uncertainties.
The outlook for gold in 2025 is comparatively impartial. Whereas gold skilled a outstanding 27% improve in 2024, it’s unlikely to copy such development within the coming yr. Geopolitical dangers and commerce tensions might proceed to drive demand for gold as a safe-haven asset, however the scale of worth will increase is predicted to average. Central financial institution shopping for might proceed to assist gold costs, however broader market situations, together with inflation issues and financial coverage shifts, might restrict important development.
Given these elements, we now have a impartial outlook for gold in 2025. Whereas it stays a dependable asset for diversification and hedging towards market uncertainty, we don’t count on the identical degree of development seen in 2024. Buyers ought to contemplate gold as a part of a balanced portfolio, however mustn’t depend on it for substantial worth appreciation within the close to time period.
What ought to Buyers do?
The yr 2024 noticed a mixture of challenges, together with international geopolitical tensions, home financial slowdowns, and shifts in key economies. Regardless of these obstacles, Indian equities, mirrored within the Nifty Index, posted a stable high-single-digit return. As we transfer into 2025, though volatility is predicted, the outlook stays cautiously optimistic, with a number of key drivers supporting future development.
Domestically, India is in a section of cyclical slowdown, with indicators of weaker city consumption, exacerbated by elements like normal elections and prolonged monsoons. Nonetheless, the agricultural financial system is displaying resilience, supported by a good harvest and monsoon season. This bodes properly for consumption restoration within the coming months. Furthermore, infrastructure improvement continues to be a key focus space, which ought to assist stabilize development.
Financial coverage stays a vital issue. Though the RBI is unlikely to implement charge cuts within the quick time period as a consequence of inflation issues and a powerful US greenback, there may be potential for gradual easing by FY26, significantly if commodity costs soften and inflation stabilizes. Within the meantime, the India-China dynamics, spurred by international commerce insurance policies, might current alternatives for India to draw funding as a part of the “China-plus-one” technique. With home liquidity nonetheless sturdy, FIIs are anticipated to re-enter the market later this yr.Looking forward to the approaching months, Q3 FY25 outcomes will play a pivotal position in guiding market sentiment. Earnings efficiency will probably be essential in figuring out market path, significantly as international and home elements weigh on investor sentiment. Whereas near-term volatility is predicted, the Indian market stays well-positioned for regular development within the medium to long run.
Disclaimer:
This text shouldn’t be construed as funding recommendation, please seek the advice of your Funding Adviser earlier than making any sound funding determination.
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