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Market Outlook 2025: Year may unfold in 2 phases: first half could continue with market consolidation, while a recovery may occur in second half
Market Outlook 2025
In the past two months, the Indian stock market has experienced an 11% correction from its all-time high. This decline marks the third significant downturn since the COVID-19 pandemic in 2020, driven by a combination of domestic and global factors, including record-high selling by Foreign Institutional Investors (FIIs). Despite the recent cooling in large-cap valuations, Motilal Oswal Wealth Management remains optimistic about sectors such as IT, healthcare, and BFSI.
FIIs sold over Rs 1.5 lakh crore in October and November, marking the largest two-month selling spree in history. Factors such as moderated earnings, high valuations in mid-caps and small caps, and a strengthening US dollar after Donald Trump’s election contributed to FIIs shifting their focus away from India, according to Motilal’s annual report.
However, optimism returned to the market following the BJP’s decisive victories in Maharashtra and Haryana in late November. Investors anticipate increased government spending, favorable policy changes, and faster execution of key infrastructure projects. This sentiment was further bolstered by a 50bps cut in the CRR by the RBI, which is expected to enhance liquidity in the market.
In the near term, Motilal recommends maintaining an overweight position in large-cap stocks while selectively allocating to mid and small-cap stocks. The firm’s sector preferences are as follows:
- Overweight: IT, Healthcare, BFSI, Consumer Discretionary, Industrials, Real Estate, and niche themes such as Capital Markets, EMS, Digital E-commerce, and Hotels.
- Underweight: Metals, Energy, and Automobiles.
Motilal Oswal Wealth Management sees the BFSI sector as well-positioned to navigate the current uncertainties, with expected repo rate cuts in Q1CY25 likely to boost profitability. The Capital Markets sector remains positive, driven by the rise in retail participation, the surge in demat accounts, and the ongoing financialization and digitization of savings.
After two years of subdued technology spending, the US tech sector is poised for recovery under President Trump’s new administration, supported by continued rate cuts. This trend is expected to benefit India’s IT sector, particularly companies focused on AI, automation, and cloud services.
The Consumer Discretionary sector stands to benefit from shifts in consumer purchasing behavior, transitioning from unorganized to organized retail. Companies catering to this shift are likely to perform well.
India is set to lead the global digital infrastructure market, with e-retail penetration projected to reach 10% by 2027. Companies with strong capabilities in next-generation technologies are better positioned for success. The government’s push for component manufacturing and localization is expected to benefit fast-growing industrial sectors like data centers, transmission, electronics, and EMS, providing a boost to capital goods companies.
Motilal’s top stock picks for 2025 include ICICI Bank, HCL Tech, L&T, Zomato, NAM India, Mankind, Lemon Tree, Polycab, Macrotech Developers, and Syrma SGS.
What to Expect in 2025?
The year 2025 may unfold in two phases: the first half could continue with market consolidation, while a recovery may occur in the second half. Indian markets will be influenced by both global and domestic economic events. Anticipated rate cuts by the RBI in February 2025, along with continued US rate cuts and expected changes in US trade policy after Trump takes office, are expected to contribute to market volatility. Additionally, the Union Budget in February 2025 will provide key signals to the market. Given the fragile global economic environment and mixed macroeconomic factors at home, the market is expected to remain in consolidation mode in the near term.
Corporate Earnings Outlook
After a subdued earnings performance in the first half of FY25, earnings are expected to recover in the second half, driven by increased rural spending, a buoyant wedding season, and a pickup in government spending. Earnings are expected to grow at a 16% CAGR over FY25-27E. The recent market correction and moderated valuations present an opportunity to selectively add bottom-up stock ideas. Despite near-term volatility, the long-term outlook remains positive, supported by the strength of corporate India’s balance sheets and the potential for robust, profitable growth.
Disclaimer:Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.