Expect stock markets to remain buoyant in 2025

Stock markets will most likely remain buoyant in 2025 unless a global event or geopolitical factor disrupts growth or significantly impacts inflation.

By Deepak Ramaraju

As per OECD growth projection for 2025, global GDP growth is expected to improve to 3.3% from 3.2% in 2024 and should remain stable even in 2026 with India reporting one of the best growth rates at 6.9%. Resilient domestic demand in India, Indonesia along with the recent stimulus measures announced in China augur well for strong growth in Asia. While global inflation should ease further in the coming year, risk remains in the form of any escalation in geo political tension.

Both gold and silver have gained ~30% over the last one-year period. Global uncertainties including the US election led to rally in gold as it is considered as safe haven. However, post Trump winning the election in US, gold has corrected in the last one-month period. After this rally, gold is expected to remain range-bound in 2025. Silver, on the other hand, may witness momentum on the back of its usage in various industrial applications including electronics, solar panels for renewable energy, advanced healthcare and electric vehicles.

Various supply-side challenges also led to higher prices of silver – a situation unlikely to improve soon. We may expect the silver prices to remain buoyant. A reversal in the DXY index may be positive for commodities. Hence a rally in metals may be expected if the DXY reverses.

Indian equities were buoyant amidst a challenging and eventful year with higher volatility. The markets were volatile with multiple global events, a slowdown in the Indian economy, tighter liquidity conditions and delayed government spending. However, a recent cut in CRR is expected to ease the liquidity conditions followed by a pickup in government spending. These two factors are expected to improve overall consumption and pickup in industrial output. The weather conditions have improved and one can expect a better agricultural output and a pickup in rural consumption. All these improvements are pointing towards a relatively better forward earning growth in the medium term.

RBI has reduced the real GDP growth forecast for FY25 to 6.6% from the previous estimate of 7.2% though 1HFY26 growth could recover to 7.1%. Currently, the most pressing issues for the domestic economy are higher interest rates, slower urban consumption owing to inflation and delayed government spending. Not to forget the geopolitical challenges, FII pullback and weakening domestic currency. All these factors will be key drivers for the market. The policies adopted by the new US government will be crucial as they will have an impact on the global economy.

One can expect the inflation to bottom out, a couple of rate cuts are on the cards, and the government is expected to continue to invest in infrastructure, boost manufacturing and focus on sustainable energy. The new direct tax code, if approved by the parliament, can improve consumption and boost savings. The domestic flows and the retail participation in the markets can increase. Overall, all these measures can lead to a resurgence in growth and we may expect the earnings to show improvement leading the markets to remain buoyant unless a global event or geo-political factor disrupts the growth or impacts the inflation significantly.

Capital expenditure by the government till October 2024 stood at Rs 4,66,545 crores, only 42% spent of budgeted Rs 11,11,111 crores for FY25. This compares with ~55% spending in the year ago period. With government stepping up investments in the 2H, sectors such as infrastructure, defense and railways may witness recovery. Moreover, FMCG, Oil and Gas, Energy were some of the worst performing sectors in the 3-month period. FMCG, badly hit by urban consumption slowdown, could witness recovery as valuation looks attractive. Besides, with government spending revival and possible interest rate cut in 1HCY25, urban consumption should recover.

IT, which has already recovered from its lows after rate cuts, may do well in 2025 as discretionary spending picks up, provided Trump does not impose any surprise tariffs. Banks may also witness recovery post interest rate cuts resulting in possible pick up in credit growth. Moreover, the recent CRR cut by 50 bps (in two tranches) should boost liquidity and credit growth in the banking sector.

(The author is Senior Fund Manager, Shriram AMC)

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