Mumbai, Dec 31: After a strong start to 2024, India’s stock markets cooled off in the final quarter, as a mix of weak corporate earnings, slowing economic growth, and global headwinds weighed on investor sentiment. The Sensex, which delivered a robust 16% return in the first nine months, ended the year with a muted 8.3% gain — less than half the returns seen in 2023.
The correction, which took hold after September, was driven by foreign portfolio investors (FPIs) pulling out over $10 billion from Indian equities. Analysts attributed the outflows to more attractive valuations in China, where fiscal stimulus and rate cuts fueled hopes of a market revival, as per The Financial Express.
“India’s high valuations and currency depreciation have made it less appealing compared to other emerging markets,” said Andrew Holland, CEO of Avendus Alternate Strategies. “I don’t see everyone rushing to India, even on a relative basis.”
While FPIs exited, domestic institutional investors stepped up, injecting ₹1.73 lakh crore ($20 billion) into the markets. Monthly inflows into systematic investment plans (SIPs) averaged ₹25,000-30,000 crore, as retail investors remained resilient despite falling stock prices.
“The last 4-5 years have seen investors make easy money, which explains the record number of new investors,” said Ambareesh Baliga, an independent market analyst. “But 2025 will be a difficult year to make quick money, and retail investors might turn to capital protection options if losses persist.”
India’s GDP growth slowed to 5.4% year-on-year in the second quarter of FY25, a seven-quarter low, as weak consumption demand and election-related uncertainties took their toll. Corporate earnings also disappointed, forcing the market to reassess lofty valuations.
“The markets have entered a consolidation phase with slower GDP growth and weakening urban demand,” said Puneet Maheshwari, Director at Upstox. “If this continues, we may see fewer firms tapping the primary market.”
Adding to the uncertainty, the return of Donald Trump as U.S. President has raised concerns over potential trade barriers, including higher import tariffs for India.
Market experts are urging investors to temper their expectations for 2025. Analysts forecast returns of 5-10%, aligning with weaker corporate earnings growth, which has been revised down to 10% from earlier projections of 15%.
“Investors should moderate their expectations, particularly in the mid- and small-cap segments, where valuations appear stretched,” said Sujan Hajra, Chief Economist at Anand Rathi Group. “Large-caps are preferable for a one-year horizon, although small-caps may have a slight edge over mid-caps for long-term investors.”
With the U.S. Federal Reserve signaling fewer rate cuts and the Reserve Bank of India’s rate-cutting cycle expected to remain shallow, Holland advises caution. “Sitting on cash and waiting to see how things play out might be the best short-term strategy,” he said.
As India enters 2025, a mix of domestic and global challenges is likely to test investor resilience, with muted returns and capital protection strategies coming to the fore.
