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

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

The Indian stock market has not started this year in the best way. Concerns over high valuations coupled with limited earnings expectations led to a sustained decline Excellent 50.

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

In fact, the benchmark is now in the red since the beginning of the year. However, this is hardly unusual for investors. By my count, the Nifty 50 has turned negative for the fifth trading day of the year in seven of the last 10 years.

It is a far cry from the bullish sentiment of the past years that the Indian stock market will race ahead S&P 500which grew by more than 20% for the second consecutive year.

Equity strategists at HSBC believe the gloomy mood sweeping the markets is likely to persist.

“As earnings disappoint – consensus has cut growth estimates (FY2025) for the NIFTY 50 from 15% to 5% – investors are likely to revalue their positions, capping the market’s gains,” the bank’s Asia-Pacific strategists, led by the Herald, said van der Linde in a note to clients on Thursday. The investment bank downgraded India’s stock rating to neutral.

Morgan Stanley noted that stocks last year, for the first time in eight years, underperformed bonds and gold (which, in truth, outperformed most global markets).

However, many, including a Wall Street bank, believe that Indian stocks are now ripe for the picking after a long slide.

“India has bottomed out,” Venugopal Garre, strategist at Bernstein, wrote in a note to clients last week. Gare expects economic growth to pick up in the next three to six months and urges investors to get ahead of the turnaround. “It is recommended to invest on the eve of recovery,” 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 deficit in February when it publishes its budget, which could lower bond yields and benefit listed companies by lowering borrowing costs.

Citi Equity Strategists support this view. They expect the Indian economy to expand by 6.5% this year on the back of increased government spending on infrastructure, which was in decline last year.

“We have a constructive view on equity returns given more reasonable market valuations following the recent correction,” 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 2024-2025 fiscal year. India’s National Statistics Office released its first preliminary forecast on Tuesday the lowest since 2020 when India’s gross domestic product shrank by 5.8% due to the pandemic. The estimate is lower than the Reserve Bank of India’s forecast of 6.6% for the current fiscal year. Here’s what HSBC and HDFC Bank economists say think about the estimate.

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

Trump’s second term will benefit Indian stocks, says portfolio manager. US President-elect Donald Trump’s plans to impose high tariffs on China do Geopolitical position of India “favorably in the era of Trump 2.0,” says Kunal Desai, portfolio manager at GIB Asset Management. “A number of Indian companies are benefiting as customers look to take a dual approach to their supply chain,” Desai said.

India is a ‘connection machine’. Investor interest in India waned at the end of 2024 due to the pullback in Indian stocks during this period. One portfolio manager, however, remains bullish on the country. A market failure is a buying opportunity, he says, and names three Indian stocks to buy for 2025 (For subscribers only)

Indian stocks started the year with a slump. The Excellent 50 the index closed around 23,500 points, down 1.8% from last week.

The 10-year Indian government bond yield was flat this year and traded around 6.76%.

Speaking on CNBC this week, BNP Paribas head of India equities Abhiram Elleswarappu said Indian markets are now going through a “soft phase” because valuations are at elevated levels. However, this “shallow correction” may end in the markets as well could return large single digits from March to the end of the year, Elleswarapu said.

Meanwhile, Pulkit Patna, Goldman Sachs’ Indian industry analyst, noted that the bank is waiting India’s cement industry will expand in the second half of the year, suggesting that “infrastructure spending is making a comeback.” Government spending, residential real estate and rural spending will make up the bulk of such investment, resulting in relatively high demand for infrastructure and related materials.