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Year End Note – Indian economy remained resilient; expects sustained economic growth in 2025
Year End Note – Indian economy remained resilient; expects sustained economic growth in 2025
9th Jan, 2025
As CY24 concludes, Indian markets have once again demonstrated resilience, marking a historic milestone with nine consecutive years of positive returns. Despite navigating significant global and domestic challenges, Indian equities maintained its upward trajectory, with the Nifty50 delivering a 9% gain and India’s market capitalization reaching USD 5.2 trillion, accounting for 4.2% of the global market cap. The Midcap & Small cap indices are on track to deliver substantially higher returns of around 24% for the year. The gains during the year have been broad-based with most sectors participating in the rally.
In terms of sectors, Pharma (+39%) and Real Estate (+34%) were the best performing sectors of 2024 while Autos (+23%) and IT (+22%) also performed well. While the broader financial services index (+9%) was able to match Nifty50 returns, the Nifty Bank index (dominated by large private banks) underperformed with just a 5% gain during the year. Energy (+5%) and Metals (+8%) were the other sectors that underperformed while FMCG (-0.3%) was the worst performing sector in 2024. Nifty earnings growth for FY24 stood at 27%, and there’s an optimistic outlook with expectations of around 5% & 16% growth in FY25 and FY26, respectively.
The year was marked by significant global and domestic headwinds like geopolitical tensions, persistent inflation, strengthening USD and elevated interest rates. On the global front, events such as the US Fed’s rate cut cycle, China’s stimulus measures, and geopolitical uncertainties, including US presidential election, created significant market volatility.
The US Fed initiated its first-rate cuts in four years, reducing rates by 100bps in its last three meetings. While several global central banks followed suit, the RBI changed its stance to neutral, however kept the policy rates unchanged due to moderating however still elevated inflation which is above than the RBI’s threshold of 4%. We believe that the rate cut by the RBI is expected in Feb 2025.
On the domestic front, a consumption slowdown, valuation concerns and volatile FII flows added to market sentiments. Despite these headwinds, the Indian markets showcased resilience, supported by robust participation from retail investors, with SIP flows exceeding INR 250 billion per month and the number of demat accounts crossing 180.5 million.
While FPIs remained net sellers, domestic institutional investors (DIIs) provided a strong counterbalance, investing a record ~INR 5 lac crores during the year. The 17 consecutive months of inflows, surpassing the combined inflows of CY22 and CY23.
The macroeconomic landscape in CY24 reflected a mixed bag. After a robust FY24, key indicators showed signs of moderation in 1HFY25. Real GDP growth slowed to 5.4% YoY in Q2FY25 (8.1% Q2FY24), compared to 8.2% in FY24, driven by reduced government spending and softer consumption.
Besides the secondary market performance, CY24 has also been a significant year for the Indian primary market, in terms of number of IPOs. The continued traction in primary market reflects sustained investor confidence and positive market sentiment. Additionally, capital raised through Qualified Institutional Placements (QIPs) and Offers for Sale (OFS) saw substantial growth, further enhancing the primary market landscape.
The Indian equity markets are poised at a critical juncture. While short-term challenges, including a slowdown in earnings growth and elevated valuations, persist, the structural growth story remains intact. As we move into CY25, a gradual recovery in corporate earnings and consumption, driven by increased government spending and improved rural incomes, is anticipated.
Easing global interest rates and favorable liquidity conditions are likely to provide additional support for Indian equities. However, global trade dynamics, geopolitical uncertainties, and elevated inflation may continue to increase market volatility. Investors are advised to maintain a balanced approach, focusing on high-quality companies with strong fundamentals and long-term growth potential.
Despite near-term uncertainties, Indian markets remain well-positioned for long-term wealth creation. The resilience demonstrated in CY24 highlights the strength of domestic liquidity, the structural growth trajectory of the Indian economy. Equities continue to offer superior returns for long-term investors, and the Indian growth story remains compelling as we step into CY25.
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