The country’s benchmark indices posted their ninth straight year of gains despite a correction in the December quarter.
The Sensex rose 8.2 per cent, while the Nifty 50 ended with gains of 8.8 per cent, fuelled largely by domestic liquidity. The indices have seen a near 10 per cent drop since hitting their highs on September 26 amid sustained selling by foreign portfolio investors in the backdrop of weak second quarter results for fiscal 2025 and lofty valuations.
The indices, however, underperformed several global indices in terms of local currency. Among Asian peers, Japan’s Nikkei 225 (19.8 per cent) and Hang Seng (19.5 per cent) were the top performers, followed by Singapore’s Straits Times (17.3 per cent) and Shanghai Composite (13.1 per cent). India also trailed major US and European indices — S&P 500 has notched up gains of 24 per cent, Nasdaq is up 30 per cent, while Germany’s DAX has soared 18.7 per cent this year.
India outperformed the UK’s FTSE (5.7 per cent), France’s CAC (2.5 per cent), South Korea’s Kospi (-10.3 per cent) and Indonesia’s Jakarta Composite (-3.3 per cent).
Outlook
The anticipated rate cut by the RBI and the Union Budget in February, as well as rate cut decisions by the Federal Reserve and US trade policies, will dictate market direction in the coming year. Earnings are expected to recover in the second half of FY25, driven by increased rural spending and a pickup in government spending.
The recent correction has improved the risk-reward of the Indian market, but experts say valuations could require more time to achieve a better balance vis-à-vis earnings and risk.
“The moderation in valuations offer an opportunity to add selective bottom-up stock ideas. In the near term, we suggest investors to maintain an overweight position in large-cap stocks while selectively allocating to mid and small-cap stocks,” said a note by Motilal Oswal Wealth Management.
IT, which has already recovered from its lows after rate cuts, may do well in 2025 as discretionary spending picks up, provided the US does not impose any surprise tariffs, according to a note by Shriram AMC. Interest rate cuts may result in a possible pick-up in credit growth, benefiting banks.
Higher government spending next year could boost urban consumption and sectors such as infrastructure, defence and railways .