FY25 Outlook: Can Nifty 50 repeat the feat of FY24? 5 challenges that loom


During FY24, stocks such as Tata Motors, Bajaj Auto, Adani Ports, Coal India, and Hero Motocorp witnessed extraordinary growth, with each of them vaulting over 100 per cent. Surprisingly, out of all Nifty 50 stocks, only two – Hindustan Unilever and HDFC Bank – concluded the fiscal year in the red, experiencing a decline of over 10 per cent each.

Also Read: FY24 Review | Bajaj Auto, NTPC, among top 10 Nifty 50 performers, deliver hefty 80-140% returns in last 12 months

The midcap and smallcap indices outshone the benchmarks by a significant margin. The BSE Midcap index surged by a remarkable 63 per cent while the BSE Smallcap index witnessed an impressive jump of 60 per cent.

Also Read: Shares to buy in FY25: Mid-cap, small-cap indices rebound from 3-month low. Top 5 stocks to buy for long-term

The resilience of the Indian stock market was buoyed by domestic investors’ confidence in India’s economic robustness and promising growth prospects.

The road ahead could be bumpy

The long-term outlook of the Indian stock market remains attractive due to the nation’s impressive growth prospects. However, challenges abound as well.

Also Read: Expert view: Corporate earnings growth, geopolitical stability key triggers for FY25, says Niraj Kumar

Let’s take a look at five crucial challenges that can puncture the prospects of the Nifty 50 index:

1. Shallow rate cuts

The anticipation of rate cuts by the US Federal Reserve has been a significant trigger for global markets in the recent past. 

In its recent policy meeting, the Fed hinted at the possibility of three rate cuts within the year. 

However, if the Fed delays these rate cuts further or if the cuts are not substantial in magnitude, it could deal a severe blow to emerging markets, including India.

2. Weaker-than-expected quarterly earnings

Poor quarterly earnings can negatively impact stock market sentiment as they hint at a potential slowdown in the company’s growth and erode investor confidence in its management and prospects, causing them to lose faith in the stock.

Experts underscored that poor earnings may trigger broader concerns about economic health and corporate performance, leading to a domino effect of selling across the market.

3. Geopolitical tensions

Geopolitical tensions create macroeconomic uncertainty by disrupting trade. Uncertainty on the economic front may make investors sell stocks or avoid fresh buying leading to a downturn in markets.

4. Growth losing steam

If the Indian economy loses momentum, it could unsettle investors who have been banking on the Indian growth narrative. 

In such a scenario, even slight indications of economic strain may trigger investor panic, leading to a rapid and substantial selloff in the market.

Also Read: FY25 outlook positive for FPI inflows, but likely to see short-term volatility, say experts

5. Political uncertainty after the General Election

The General Election remains a major trigger for the market. Presently, the market seems to have factored in the likelihood of a stable government post-election. However, any hint of political uncertainty following the election could deal a substantial blow to market sentiment.

Expert view

Vinod Nair, the head of research at Geojit Financial Services is positive towards sectors such as pharma, capital goods and infra, as they are supported by both domestic and external demand.

Some sectors like FMCG and IT are facing challenges due to subdued demand at present, but Nair anticipates a turnaround, driven by expectations of a normal monsoon and increased US demand following the Fed’s rate cut. 

Besides, the shift in RBI’s interest-rate policy from withdrawal to accommodative is expected to facilitate improvement in Indian banks’ performance in FY25.

Nair foresees India as an outperformer amid a cautious global market environment.

He expects large caps to be better positioned to overcome the global challenges with a beat in consumption demand, led by improvement in rural demand and the ‘China plus one’ strategy.

“Currently, we have set a target of 23,600 for the Nifty 50 Index, with potential for further upside, contingent upon favourable monsoon conditions and budgetary outcomes,” said Nair.

Also Read: Expert view: Nifty 50 could deliver 16% earnings growth in FY25, and largecap 100 too, says Roop Bhootra of Anand Rathi

Deepak Jasani, the head of retail research at HDFC Securities believes Nifty 50 may see a sedate start in FY25 except for the key dates of exit polls and counting of votes after a 27 per cent rise in Nifty in FY24.

In Jasani’s views, the key risk for the markets in FY25 could be whether a positive outcome of elections is already discounted to a large extent and the street would like to track the fresh policy measures and Union Budget by the new Government before getting more excited.

Also Read: Expert View | Market to consolidate in FY25, Nifty 50 upside capped at 24,300: Rahul Ghose of

Shrikant Chouhan, the head of equity research at Kotak Securities said there are tailwinds, but there are equal headwinds too, which can keep the market balanced in FY25.

Chouhan sees the market as fairly valued at present.

“In terms of valuations, the market is currently trading at 18 times to FY26EE, we are looking at an EPS (earnings per share) of 1,220 (FY26), the market valuations are fairly valued at present,” said Chouhan.

“If events start to unfold positively and global macros start to ease then we can see the market reaching the 24,400 mark, which is 20 times of FY26E earnings. If we consider the other side of the coin with negative outcomes, the market may go down to 19,500, which is 16 times from FY26E. We believe the market should do well in the long term, however, it is expensive in the medium to short term. In this type of scenario, it is advisable to buy on dips with a cautiously optimistic approach,” said Chouhan.

Rakeshh Mehta, the chairman of Mehta Group anticipates the bullish trend to persist in FY25, with volatility primarily influenced by global events. Strong participation from domestic investors such as DIIs, HNIs, and retail investors is expected to bolster the market further.

“The current market setup is favourable, driven by expectations of policy continuity due to the upcoming national elections and the anticipation of PM Modi-led BJP retaining power,” said Mehta.

“Additionally, expectations regarding interest rates from the US Federal Reserve and RBI are contributing to market positivity. While increased volatility is expected, major corrections are not foreseen in the next three to four months, although periodic profit booking attempts may lead to a 3-5 per cent downside risk,” said Mehta.

Mehta pointed out that global market dynamics, particularly actions by the US Federal Reserve Chairman to control inflation and signal interest rate cuts in the second half of the year, will play a vital role in the market.

Geopolitical tensions also pose a short-term challenge for India, although the long-term growth story remains intact. Despite these challenges, India’s journey toward becoming a $5 trillion economy is on track, and stock markets are expected to reward long-term investors, said Mehta.

According to Arvinder Singh Nanda, a senior vice president at Master Capital Services, for FY25, India stands firm as an attractive hub for investments. A confluence of factors, such as robust economic expansion, potential reductions in interest rates, and consistent market valuations, bolster this perspective. In the short term, there could be some volatility as it is an election year.

However, Nanda said investors should view this as an investment opportunity. He is bullish on PSU, renewable energy and healthcare for FY25.

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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 31 Mar 2024, 01:42 PM IST


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