The markets, according to analysts, will improve in the new year and provide a return of 12–13%.
Concerns over sluggish economic development and inflows of foreign capital caused local stock markets to slow down in calendar year 2024 (CY24), following a roughly 20% increase in 2023. Despite steep declines in the final quarter of 2024, major indices continued their upward trend, with the Nifty 50 rising 8.80% and the Sensex 8.17% in CY24.
However, experts predict that the markets will improve in the new year, yielding a return of 12–13%.
December 31 saw a 109-point drop in the BSE Sensex to 78,139.01 and a 0.10-point drop in the NSE Nifty to 23,644.80. Due to sluggish economic growth and outflows of foreign portfolios, the Sensex fell in the weeks after its peak of 85,978.25 on September 27.
Due to elevated levels of uncertainty and overstretched valuations, markets are gearing up for a cautious start to the new year. Compared to the previous year’s robust influx of Rs 1.71 lakh crore, foreign portfolio investors (FPIs) significantly reduced their activity in 2024, with a net inflow of little over Rs 1,600 crore into the domestic equities market.
Worries regarding the assessment
Reasons for the dramatic change in foreign flows in 2024 include worries about the value of Indian stocks, sluggish corporate profits, higher US bond yields, and slower-than-expected domestic GDP growth in the second quarter of fiscal year 2025.
We expect Indian stocks to expand by 12–13% this year, thanks to our optimistic outlook on the country’s domestic macroeconomics and, fingers crossed, better relations with the West. Jitendra Gohil, chief investment strategist at Kotak Alternate Asset Managers, predicted that corporate earnings will be in the low double digits, rather than the mid- to high teens that the market was expecting.
Gohil speculated that falling margins could be the primary factor behind these downgrades, with revenue acceleration playing a moderating role. “We do not expect major de-rating in the headline Nifty Index from a valuation perspective,” he stated, adding that the 12-month forward PE is expected to stay in the 19 to 21 times area.
A buy-on-dips approach will increase India’s fixed income due to the country’s steadily increasing tax-to-GDP ratio and the government’s strict adherence to fiscal austerity measures.
In 2024, the rupee gained value compared to the majority of other major currencies. Even though we have a 5–7 percent allocation to gold in our portfolio, we still favor the US market for international equities. Gohil expressed structural concern over the economic difficulties China will face in the near to medium term, despite the possibility that Chinese equities may have a recovery following years of underperformance.
Who knows what the future holds?
The high US bond yield and strong dollar, according to analysts, will guarantee that FPIs will keep selling on every increase. The market won’t go much higher due to weak domestic institutional buying. Except in specific areas of fair value, not even DIIs and HNIs have the conviction to accumulate equities. We won’t know if we should be buying equities or not until macro signs point to a recovery in GDP and earnings. An analyst warned that investors should keep an eye on the third quarter results beginning on January 10th in order to find companies that are reporting strong statistics despite the slowdown in growth.
The world is on the verge of an investment cycle, not because people are forced to but because of opportunity,” stated Navneet Munot, MD and CEO of HDFC AMC Ltd.
Vinod Nair, head of research at Geojit Financial Services, claims that negative global cues and persistent worries about a rising dollar index and US bond yields are pulling down local momentum due to consolidation pressures. Rising petroleum prices and foreign portfolio outflows are putting pressure on the rupee and lowering sentiment. However, according to Nair, investors would be looking to the domestic Q3 numbers to gauge possible growth and earnings recovery, as well as the Union budget to provide a short- to medium-term outlook in light of global uncertainty.
