CNBC's Inside India newsletter: What to expect for the stock market in 2025

This report is from the CNBC "Inside India" newsletter, which provides timely and insightful news and market commentary on the emerging powerhouse and the big businesses driving its rapid growth. If you find it interesting, you can subscribe here.

The big story

The Indian stock market has been experiencing a decline due to concerns about high valuation multiples and reduced earnings projections.

Since its recent high in late September, the index has re-entered correction territory with a 10% decline.

In seven out of the past 10 years, the Nifty 50 has turned negative on the fifth trading day of the year.

The Indian stock market's bullish sentiment from previous years has significantly decreased, with the market lagging behind the US market, which experienced a 20% increase in value for the second consecutive year.

HSBC equity strategists predict that the market's gloomy atmosphere is likely to persist.

If financial year 2025 growth estimates for the NIFTY 50 are cut from 15% to 5% due to disappointing earnings, investors will likely reassess their positions, limiting market returns, according to the bank's Asia Pacific strategists led by Herald van der Linde in a note to clients Thursday. The investment bank has downgraded Indian equities to neutral.

In 2020, for the first time in eight years, stocks underperformed bonds and gold, which outperformed most global markets, as noted by Morgan Stanley.

The Wall Street bank and many others believe that Indian equities, after their decline, are ready to be bought.

Venugopal Garre, strategist at Bernstein, wrote in a note to clients last week that India has hit rock bottom. Garre predicts that economic growth will rebound over the next three to six months and advises investors to take advantage of this turnaround. "Investing ahead of the recovery is recommended," he stated. According to Bernstein, the Nifty 50 will end the year at 26,500, up 13% from current levels.

The central government is predicted by Morgan Stanley to decrease the deficit in February, which may lower bond yields and benefit listed companies through lower borrowing costs.

Equity strategists at Citi share this view. They predict that the Indian economy will grow by 6.5% this year, thanks to the government's increased infrastructure spending, which was previously sluggish.

Citi's Surendra Goyal stated in a note to clients that the investment bank has a constructive outlook on equity returns due to the market's more reasonable valuations following recent corrections. Additionally, the bank expects Nifty to end the year at 26,000, which is a 10.5% increase.

Need to know

The Indian National Statistical Office has forecasted that India's economy will grow 6.4% in fiscal year 2024-2025, which is lower than the Reserve Bank of India's projection of 6.6% for the current fiscal year. Economists at HSBC and HDFC Bank have their opinions on the estimate.

The Indian Commerce Ministry has instructed its overseas missions to intensify market intelligence and explore export prospects in order to boost the country's exports. A three-day conference, organized by the ministry, will bring together commercial heads from Indian missions in 20 key countries to focus on expanding exports.

According to GIB Asset Management's portfolio manager Kunal Desai, the second term of U.S. President-elect Donald Trump will benefit Indian stocks due to the country's favorable geopolitical positioning in the "Trump 2.0 era." Desai stated that a number of Indian companies are taking advantage of this situation as customers look to adopt a dual source approach to their supply chain.

India is a "compounding machine." Despite a dip in Indian equities at the end of 2024, one portfolio manager remains bullish on the country. He sees the market as a buying opportunity and recommends three Indian stocks to buy for 2025. This information is exclusive for subscribers only.

What happened in the markets?

Since last week, the Indian stock index has fallen by 1.8%, ending the year with a closing point of approximately 23,500.

The Indian government bond yield has remained stable this year, hovering around 6.76%.

According to Abhiram Eleswarapu, head of Indian equities at BNP Paribas, Indian markets are currently experiencing a "soft phase" due to elevated valuations. However, this "shallow correction" may soon come to an end, and markets could see high single-digit returns from March until the end of the year, Eleswarapu predicts.

Goldman Sachs' India industrials analyst, Pulkit Patn, stated that the bank anticipates India's cement industry to grow in the second half of the year, indicating a resurgence of infrastructure spending. The government, residential real estate, and rural spending will account for the majority of such investment, leading to a strong demand for infrastructure and related materials.

What's happening next week?

Major economies released inflation data during a busy week, while India's Standard Glass Lining Technology, Capital Infra Trust, and Quadrant Future Tek went public.

December payrolls for nonfarm businesses in the U.S. and the consumer price index in the U.K. for the same month.

January 12: China consumer price index and balance of trade for December

On January 13th, the consumer price index for India in December and the IPO of Standard Glass Lining Technology were announced.

On January 14th, Capital Infra Trust and Quadrant Future Tek will both have IPOs, and the U.S. producer price index for December will be released.

December's U.S. consumer price index and India's balance of trade for January 15.

January 16: U.K. gross domestic product for November