The year 2024 has been an eventful one for the Indian stock markets, with the Sensex and Nifty posting their ninth consecutive year of gains. Despite a correction in the December quarter, the benchmark indices managed to end the year on a positive note, with the Sensex rising 8.2% and the Nifty 50 gaining 8.8%. The main driving force behind these gains was domestic liquidity, as foreign portfolio investors were engaged in sustained selling throughout the year.
However, compared to global indices, the Indian market underperformed in terms of local currency. Asian peers like Japan’s Nikkei 225 and Hang Seng, as well as Singapore’s Straits Times and Shanghai Composite, outpaced the Indian indices. Furthermore, major US and European indices like the S&P 500, Nasdaq, and Germany’s DAX also outperformed the Indian markets in 2024.
Looking ahead to 2025, there are several factors that will influence the market direction. The anticipated rate cut by the RBI, the upcoming Union Budget, decisions by the Federal Reserve, and US trade policies will play a crucial role in shaping the market sentiment. Additionally, the recovery in earnings in the second half of FY25, driven by increased rural spending and government expenditures, is expected to provide a boost to the markets.
Despite the recent correction, experts believe that valuations in the Indian market still need time to align with earnings and risk. However, there are opportunities to invest in selective bottom-up stock ideas, with a focus on large-cap stocks in the near term. Sectors like IT, which has already shown signs of recovery, may perform well in 2025, especially if discretionary spending picks up. Banks could also benefit from potential interest rate cuts leading to increased credit growth.
Moreover, higher government spending in the upcoming year is expected to boost urban consumption and benefit sectors like infrastructure, defense, and railways. Overall, while the Indian markets may have underperformed in 2024, there are reasons to remain cautiously optimistic about the outlook for 2025.
