Equity Market Outlook
A downward trend in both the economic and corporate sectors, which continues to unfold. In Q2 FY25, earnings miss outnumbered earnings beats by more than a factor of two, with the depth of earnings revisions heavily skewed towards the misses. GDP growth for the quarter ending September 2024 fell to 5.4%, a seven-quarter low, missing estimates of 6.5% by a significant margin. While macroeconomic and corporate earnings data are important indicators, many of these below-estimate figures are already priced in. It looks like it is now the right time to take a more optimistic view on select segments of the market.
Liquidity conditions have improved, with Foreign Institutional Investors (FIIs) turning net buyers last week of November 2024 after eight consecutive weeks of net selling, marking a $0.5bn inflow into the Indian markets. This shift suggests that the selling pressure from FIIs has eased, providing a potential positive catalyst for equities in the coming weeks.
As we approach the end of 2024, we are now beginning to see early signs of a revival. Market sentiment has turned negative, offering opportunities for selective positioning. We believe the market has the potential to recover and gradually move upwards from here upon receipt of fresh good signs, which we expect post the current wedding and holiday season.
Regarding macroeconomic factors, US yields have risen following recent Fed actions and the election of Donald Trump, which has sparked speculation about a potential return of inflation, further dampening sentiment. Policy shifts under the new government, along with any associated debt issuance, will be closely monitored.
Domestically, growth indicators suggest a slowdown, particularly in consumption-driven sectors, with urban demand showing signs of weakness. However, India's long-term economic outlook remains positive, driven by expectations of a capital expenditure-led growth cycle. While the broader market is underperforming, inflows from domestic institutional investors (DIIs) continue.
In terms of consumption, the healthy Kharif sowing and a strong outlook for the rabi season should support rural demand, while the pace of urban demand slowdown, alongside the festive and wedding seasons, remains a key monitorable. The Nifty 50 has corrected by around 8% from its 52-week high, following a bull run from March 2023 to September 2024. This correction reflects a natural pullback after the markets reached the upper end of their range.India is in a structural bull run and is expected to grow from here. Stock pickers market and staggered way investors should invest and generate wealth to see through volatility. Our strategy will continue to focus on identifying companies using a "booms up" approach—selecting those with the potential to outperform even in challenging conditions. Investors could opt for a staggered mode of investment through the SIP route to even out volatility
Debt Market Outlook
The year 2024 could be marked as a pivotal point in global history, with key geopolitical and economic events influencing the international relations and economies of various countries. Despite facing several challenges such as persistent inflation, disappointing Q2FY25 earnings, election outcomes, FII outflows, and ongoing global geopolitical tensions, India's equity markets demonstrated remarkable resilience. Both the Nifty 50 and Sensex recorded strong positive returns during the year.
Looking ahead to 2025, global economic uncertainties are likely to persist, fuelled by trade disputes and ongoing challenges in China. However, India appears relatively insulated from many of these broader global shocks. While volatility is expected to remain elevated, driven by both external and domestic factors, India's economy shows promising signs of growth. Strong GST collections, favourable Kharif crop sowing figures, and rising rural demand offer positive indicators, while the Purchasing Managers' Index (PMI) and export performance suggest continued growth momentum.
Domestically, India is expected to continue emerging as a standout in an otherwise stagnant global growth environment, benefiting from strong demographic trends, political stability, and stable macroeconomic conditions. The economic reforms implemented in recent years are beginning to yield positive results, as seen in robust tax collections, improved government expenditure quality with a focus on infrastructure, and a boost to manufacturing via the Production Linked Incentive (PLI) scheme and other initiatives. Meanwhile, many other large emerging economies—such as China, Brazil, Taiwan, and Saudi Arabia—are facing growth or geopolitical challenges, positioning India to capture a significant share of global capital flows into emerging markets.
Indian markets performed well in 2024, both in absolute terms and relative to most other emerging markets. While the macroeconomic backdrop remains supportive of equities, investors should remain mindful of potential volatility that could arise in various sectors throughout the year. Staggered equity investments will likely remain the preferred strategy for 2025, with patient investors focused on long-term gains and well-established large-cap companies standing to benefit from a healthy allocation.
Source: RBI, Bloomberg, CCIL, MOSPI (as on 31st December 2024)