‘Markets holding strong due to sustained DII inflows, despite patchy and negative FII flows’

It has been a landmark year, with the Nifty and yellow metal reaching new all-time highs, the NDA forming its third successive government in India and widespread geopolitical uncertainty. We began the year on a positive note, with the Nifty gaining 20 per cent until September 26, when it hit a new all-time peak of 26,277. Since then, the markets have corrected 10 per cent, but I believe this is a healthy correction. Despite the volatility caused by the Lok Sabha elections, the US Presidential elections, rising tensions in West Asia and inflation pressures on consumption, the markets are likely to close the calendar year in positive territory.

On the positive side, India remains the fastest-growing economy, with GDP growth likely to be +7 per cent in FY25. The capex push on infrastructure, PLI schemes, energy transition and digitisation, along with a gradual uptick in rural demand following normal monsoons, are significant positives.

Challenges included elevated valuations, with MSCI India trading at a significant premium over other emerging markets. India is no longer under single-party majority rule after a decade, which is also a key headwind to monitor. Global developments, such as signs of a US economic slowdown and the unwinding of the Yen carry trade, were major concerns for investors. For traders, stricter F&O regulations, like the reduction of weekly expiries and an increase in contract size, dampened sentiment but were necessary to execute.

Reflecting on 2024, it has been a year of resilience and growth for Indian markets, though not without its challenges.

I’m cautiously optimistic about 2025. Recent growth trends have been muted, however with normal monsoons, food inflation should trend lower which will make a case of cut in interest rates a few months down the line. The government should also start its capex programme as most of the State elections are also getting over, this should boost economic activity in Q425 and beyond.

Markets have been holding strong due to sustained DII inflows, even as FII flows have been very patchy and negative. We believe froth in small-caps, primary markets is coming off and larger mid-caps and large-caps are likely to outperform. Focusing on businesses with strong moats will help investors preserve capital and generate returns in the coming year.

We at PL are valuing Nifty at 15-year average PE (19.1x) with September 26 EPS of ₹1,434 and arrive at 12-month target of 27,381 (27,867 earlier).

We have seen this story play out in 2022 when Russia-Ukraine crisis disrupted supply chains and led to increased raw material prices for many Indian companies, which impacted margins and earnings. If the crisis in West Asia is prolonged, similar worries could continue.

Disruption of global supply chain is the key fallout of current crisis, the impact of which is visible cross oil and food articles globally.

Apart from these crises, India stands at the crossroads of other geopolitical factors too. China has rolled out a slew of monetary and fiscal stimulus measures, including debt swaps with local governments, cuts to borrowing rates and measures to facilitate property purchases. This means prolonged FII outflows from India as Chinese equities remain under-owned, while India continues to trade at a premium.

At the same time, Donald Trump’s presidency in the US is bad news for China and good news for India as he strongly favours protectionism with a focus on renegotiating trade deals and imposing heavy tariffs. This could open up opportunities for India to replace Chinese imports in the US market.

Sectors like Capital Goods, Infra, EMS, Hospitals, Pharma, Tourism, Auto, New Energy, E-com, Jewellery etc. are good themes to play at current valuations.

In 2025, I see significant action in sectors like Infrastructure and Capital Goods, driven by continued investments in large-scale projects under the National Infrastructure Pipeline. Healthcare will also see strong growth as investments in hospitals, diagnostics, and exports of generics and vaccines increase.

The auto sector, particularly EVs, is set for a big year with rising adoption and investments in charging infrastructure. Banking and financial services will thrive with robust credit growth and increased financial penetration. Additionally, tourism and consumer discretionary sectors should benefit from rising incomes and growing domestic demand.

These sectors align with India’s structural growth story and reflect the opportunities emerging from economic and policy shifts.