2025 Market Outlook: CLSA Predicts Challenging Year for Nifty Amid Global Uncertainty and Domestic Slowdown

CLSA has forecast a tough year for the Nifty 50 index in 2025, predicting muted returns due to a mix of a volatile global macro environment and a near-term economic slowdown in India. The research firm cites elevated valuations and lower-than-expected capex spending as key factors contributing to a challenging outlook for the Indian market.

Global Risks and Domestic Factors

CLSA’s report highlights several risks that could impact India’s performance. Among them is the uncertain global trade environment, especially with potential trade restrictions under a possible Donald Trump administration, which could affect export-driven emerging markets like China. If restrictions are severe, India’s position may strengthen, but a less aggressive stance might harm its performance within a broader emerging market rally.

On the US Federal Reserve’s stance, CLSA casts doubt on significant interest rate cuts in the US for 2025, which, combined with potential policy shifts under Trump, may boost the US dollar and create headwinds for emerging markets like India.

Domestically, inflation cooling, aided by a high base, is creating a favorable environment for rate cuts under the Reserve Bank of India’s (RBI) new leadership. However, CLSA warns that the overvaluation of Indian bonds and the rupee relative to global peers may limit the room for significant reductions in Indian bond yields.

Affordable Consumption as a Safe Haven

Amid these global and domestic uncertainties, CLSA sees rising opportunities in affordable consumption. The firm highlights that large-cap stocks in this sector are now trading at lower premiums compared to their historical averages, offering an attractive risk-reward scenario. Despite ongoing challenges in the capex sector, including a decline in government spending, the government’s increased focus on welfare schemes and rural income recovery may provide a boost to consumption stocks.

CLSA notes that the affordable consumption sector, including companies like Nestlé and Britannia, offers defensiveness in the face of broader market volatility. Despite high valuations in capex-focused stocks, consumption stocks are expected to outperform, especially with improving rural incomes from favorable weather and government spending.

Portfolio Adjustments and Strategy

In light of recent market corrections, CLSA has made several portfolio adjustments. Notably, the firm added Tata Motors, NTPC, Nestlé, and Britannia to its India focus portfolio, while removing HDFC Bank and reducing its overweight position in the banking sector. The firm has adjusted its portfolio to focus on stocks with lower expectations and strong potential for recovery amid uncertain market conditions.

  • Tata Motors was added after a 35% decline in its stock price, making it a more attractive option considering risks in the commercial vehicle and Jaguar Land Rover segments.
  • NTPC is seen as a solid pick in the power sector, especially with its expected capacity additions in the first half of 2025.
  • Nestlé and Britannia were added due to their recent price corrections, offering good entry points in the affordable consumption space.
  • HDFC Bank was removed as CLSA adjusted its stance on the banking sector, anticipating that rate cuts by RBI may impact the sector’s performance.

Portfolio Performance

CLSA’s portfolio outperformed the Nifty by 30 basis points in 2024, though it underperformed by 4.1 percentage points in the last quarter due to a market correction. Since its inception in January 2021, the portfolio has delivered an impressive return of 186.7%, compared to 77.3% for the Nifty.

Overall, CLSA’s outlook for 2025 reflects a cautious approach, with a focus on affordable consumption and commodities, while reducing exposure to banks, IT, discretionary, industrials, and healthcare sectors. The firm’s strategy emphasizes portfolio defensiveness amid a challenging global and domestic macroeconomic landscape.

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