Indian Stock Market 2024: Resilience Amid Challenges and Optimism for 2025

In 2024, the Indian stock market delivered commendable returns despite navigating a turbulent year. The BSE Sensex rose by 8.17%, while the NSE Nifty50 climbed 8.8%. These gains came despite significant hurdles, including heavy selling by foreign institutional investors (FIIs), muted corporate earnings in Q2, adverse weather, geopolitical conflicts involving Iran-Israel and Russia-Ukraine, and the unexpected results of the 2024 General Elections.

Macroeconomic Stability to Drive Growth

Looking ahead, strong macroeconomic fundamentals are expected to propel the Indian markets in 2025. Key drivers include:

  • Robust earnings growth supported by a private capital expenditure (capex) cycle and increasing corporate balance sheet leverage.
  • Structural consumption growth fueled by a burgeoning middle class.
  • Favorable domestic conditions such as benign oil prices and ample risk capital.

The continuation of fiscal consolidation, high real GDP growth, and relatively lower real interest rates are crucial to sustaining India’s macroeconomic stability.

Market Movements: December 2024 Recap

In December 2024, the Nifty and Sensex dipped by 2%, mirroring a similar decline of 2.4% in the S&P 500. However, Indian midcaps edged up by 1%, while small caps remained flat. By contrast, US midcaps and small caps fell sharply by 7% and nearly 8%, respectively, as developed markets across Europe also faced notable declines.

The downturn in US equities appears tied to tax-loss harvesting by FIIs or asset reallocation into cash. Interestingly, US Treasury yields rose for longer-term bonds, while T-bills saw reduced yields and increased money market fund inflows. This shift suggests a rebalancing of portfolios amid anticipated Federal Reserve interest rate cuts and potential inflationary pressures from tariff policies.

India’s Economic Outlook: Resilience Amid Volatility

India’s economy remains robust, with real GDP growth expected at 6.4% and nominal GDP at 9.7% for FY2025. Inflation is likely to stay within the Reserve Bank of India’s (RBI) upper tolerance of 6%, pushing nominal GDP growth to 11.5%-12%.

Key economic indicators reflect this optimism:

  • Purchasing Managers’ Index (PMI): Consistently above 50, signaling expansion.
  • GST collections: Up 9.1% YoY from April to December 2024.
  • Advance tax collections: Grew 21%, driven by a 17% rise in corporate taxes and a 35% increase in non-corporate taxes.

Government spending in the final quarter of FY2024-25 is expected to further stimulate growth, with the Union Budget 2025-26 likely emphasizing increased capital expenditure.

Sectoral and Valuation Trends

Large-cap stocks remain attractively priced with a price-to-earnings (PE) ratio of 22, compared to midcaps at 43 and small caps at 34, which appear overvalued. Among sectors, Banks & Financial Services, Autos, Metals, and Oil & Gas trade below the Nifty 50 average PE. However, cyclical sectors like Metals and Oil & Gas may still be fairly or overvalued, positioning Banks as a key undervalued sector.

Global Market Trends and US Outlook for 2025

The US stock market witnessed a stellar rally in 2024, with the NASDAQ-100 leading the way, climbing 34%. The S&P 500 rose 28%, and the Dow Jones gained 16%. However, 2025 will bring new challenges, influenced by:

  • Federal Reserve policies and interest rate decisions.
  • Economic momentum: Sustained consumer spending and business investments are critical.
  • Geopolitical tensions: Potential tariffs and trade disputes could impact stability and inflation.

Investment Insights: Lessons for 2025

2024 underscored the importance of identifying early-stage growth stories. Disruptive innovators like AppLovin and consistent performers like NVIDIA and Tesla have rewarded patient investors. As 2025 unfolds, diversification, vigilance on economic and geopolitical developments, and a long-term perspective remain vital strategies for navigating uncertainties.

With strong domestic tailwinds and improving global conditions, the Indian stock market is poised for growth, promising lucrative opportunities for disciplined investors.

Disclaimer: The opinions expressed are those of the author and do not constitute financial advice.

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