Stocks have ‘bottomed out.’ Here’s what 2025 has in store

This report is from this week’s CNBC “Inside India” newsletter which brings you timely, insightful news and market commentary on the emerging powerhouse and the big companies behind its meteoric rise. Like what you see? You can subscribe here.

The stock market in India did not have the best start this year. Fears of high valuation multiples with cut earnings expectations have led to a steady decline for the Nifty 50.

The index has now re-entered correction territory – down 10% – from its most recent high in late September.

In fact, year to date, the benchmark is now in the red. This is little out of the ordinary for investors, however. By my count, the Nifty 50 has turned negative by the fifth trading day of the year in seven of the last 10 years.

However, this time is different. Many analysts came into the new year raising concerns about high valuations and slowing earnings growth in companies.

It is far from the bullish sentiment of other years when the Indian stock market ran ahead of the S&P 500which has grown by more than 20% for the second year in a row.

HSBC’s equity strategists believe that the markets gloomy mood that may continue.

“As the earnings disappoint – the consensus has cut [financial year 2025] growth estimates for the NIFTY 50 from 15% to 5% – investors are likely to evaluate their positions, limiting market returns,” said the bank’s Asia Pacific strategists led by Herald van der Linde in a note to customers Thursday.Indian stocks to neutral.

Morgan Stanley pointed out that stocks last year, for the first time in eight years, did worse than bonds and gold (which, to be fair, outperformed most world markets).

“In the long term, we think equities will lead in financial assets and gold will shine among physical assets,” said Ridham Desai of the investment bank.

Many also believe that Indian capitals, after their long slide, are now ripe for the picking.

“India has hit,” Bernstein strategist Venugopal Garre wrote in a note to clients last week. Garre expects economic growth to resume in the next three to six months and urges investors to anticipate the turnaround. “Investing before the recovery is suggested,” he added. Bernstein expects the Nifty 50 to end the year at 26,500, up 13% from current levels.

Morgan Stanley says the central government is likely to reduce the fiscal deficit in February when it unveils its budget, which could lower bond yields and reduce borrowing costs for businesses.

This view is echoed by Citi’s equity strategists. They expect the Indian economy to expand by 6.5% this year, driven by a boost from government infrastructure spending, which was down last year.

“We have a constructive outlook on equity returns given more reasonable market valuations after recent corrections,” Citi’s Surendra Goyal said in a note to clients. The investment bank also expects the Nifty to end the year at 26,000 – up 10.5%.

Indian authorities expect its economy to grow by 6.4% in the fiscal year 2024-2025. India’s National Bureau of Statistics provided its first advance forecast on Tuesday the lowest since 2020 when India’s gross domestic product declined 5.8% due to the pandemic. The estimate is lower than the Reserve Bank of India’s projection of 6.6% for the current fiscal year. This is what economists at HSBC and HDFC Bank think about the estimate.

India wants the country’s overseas missions to help boost exports. The Indian Ministry of Commerce asked the Indian missions increase market intelligence efforts and identify export opportunities, government sources told CNBC-TV18. Business leaders from Indian missions in 20 key countries will gather for a three-day meeting, organized by the ministry, which will focus on export growth.

Trump’s second term will benefit Indian stocks, says portfolio manager. US President-elect Donald Trump’s plans to impose heavy tariffs on China do India’s geopolitical positioning “favorable in this Trump 2.0 era,” according to GIB Asset Management portfolio manager Kunal Desai. “A number of Indian companies are taking advantage as customers are looking to take a dual-source approach to their supply chain,” Desai said.

India is a ‘compounding machine’. Investor interest in India has waned at the end of 2024 due to a recovery in Indian stocks during that period. One portfolio manager, however, remains bullish on the country. The dip in the market is a buying opportunity, he says, and name three Indian stocks to buy by 2025. [For subscribers only]

Indian stocks started the year sliding. U Nifty 50 index closed around 23,500 points, a decrease of 1.8% from last week.

The benchmark 10-year Indian government bond yield has been flat so far this year and has traded around 6.76%.

On CNBC TV this week, BNP Paribas’ head of Indian equities, Abhiram Eleswarapu, thinks Indian markets are going through “a soft phase” at the moment because valuations are at a high level. However, this “superficial correction” could be fine, and the markets could return high single digits from March until the end of the year, Eleswarapu said.

Meanwhile, Pulkit Patn, India’s industrial analyst at Goldman Sachs, noted that the bank hang on India’s cement industry to expand in the second half of the year, which suggests that “infrastructure spending is back.” Government spending, residential real estate and rural spending form the bulk of such investment, resulting in relatively strong demand for infrastructure and related materials.