1 week Ago
The last few months of 2024 saw some turbulence in global equity markets due to various factors, leading to a correction in stocks. India’s share in global market capitalization has dipped to 4.2% in December from its August peak of 4.
6%, as global equity markets faced turbulence, showed an analysis by Motilal Oswal Financial Services Ltd. Despite the correction, India’s resilient macroeconomic stability has kept its equity markets afloat, well above the historical average of 2.7%.
The good part is that despite the moderation, the Indian market was among the top 10 contributors to global market capitalization in December. Even though key benchmark index Nifty50 fetched 9% returns in 2024, its performance in December in local currency terms was lacklustre compared to some other Asian markets. In 2025, the outlook for Indian equities hinges on many local and global factors, so it is better to keep expectations low.
While sustained inflows by domestic institutional investors have helped to keep stock market sentiment upbeat, a reversal in fund outflows by foreign portfolio investors who were net sellers of Indian stocks in 2024, will be a crucial monitorable. Here, the movement in the Indian rupee, which hit a new low, falling past 85 levels per US dollar, would be among the deciding factors. Concern of the ongoing urban consumption slowdown weighing on India Inc’s performance looms large.
An uptick in government spending during H2FY25, coupled with higher rural incomes, could provide some support to corporates. However, further earnings downgrades would likely dampen investor sentiment. Globally, geopolitical uncertainties, the pace and quantum of interest rate hikes by the trend-setter US Federal Reserve and potential changes in tariffs by US President Donald Trump could keep volatility in emerging market currencies and equities high.
Meanwhile, after the recent correction, the valuation of Indian equities has cooled off slightly. The Nifty50 now trades at a 12- month forward price-to-earnings multiple of 19.9x, a tad lower than its long-term average of 20.
5x, according to the Motilal Oswal report. Even so, India continues to trade at a premium to Asian and emerging market peers. An increased pressure on corporate earnings and gross domestic product growth losing further momentum exposes India's elevated valuation to downside risk.
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