After a great year, which saw the Nifty giving decadal high returns, things are likely to slow down in FY25, said market experts.
What would impact the market sentiments are events such as elections in India, the US and other countries, interest rate action and continued geopolitical tensions. But most experts believe that the returns from Indian markets could be around a stable 10-15% – implying another year when real returns (returns minus consumer price inflation) could be in the positive.
In FY24, the Sensex and Nifty returned 25% and 29%, respectively. The broader mid-cap and small-cap indices outperformed the benchmarks significantly by returning over 60% each.
Between FY20 and FY24, the Nifty and Sensex have given thumping 160% and 150% returns, respectively. The next best performer during the period was the Nasdaq composite that returned 113%, followed by S&P and Taiwan’s Taiex, which gave returns in three-digits. All the other major markets gave returns in double digits. China’s Hang Seng fell by almost 30% during this period.
Given the spectacular returns, experts advise caution, especially when it comes to mid and small caps. In fact, they believe that FY25 could be a stock picker’s year unlike FY24 which saw broad-based rally. “Given the exceptional returns observed in FY24 across various indices, it would be prudent for investors to moderate their expectations for FY25,” said Nilesh Shah, MD of Kotak AMC.
According to Shah, valuations are a worry, especially in the small and mid-cap segments. “While the Indian market remains well-poised for long-term growth, the valuation metrics suggest a cautious approach. Small and mid-cap indices, in particular, have reached valuations that warrant a careful assessment of growth prospects against potential risks,” he added.
While being optimistic, GQuant’s founder Shankar Sharma is going by the historical performance of markets globally. “I am optimistic about the course of the markets for FY25, but remember that we are now in the fifth year of a bull market. Usually, bull markets do not last more than 5 years, often a bit less than that, and we are all hoping that India will be an exception to this broad global rule,” he said.
UR Bhat, co-founder of Alphaniti Fintech, said that investors can earn 10-15% returns in FY25 even as he pointed out that high valuations could limit gains in the broader market. “The performance of mid and small-caps has been exemplary. There might be some lull there, but for large-cap stocks, you can’t really argue that they are terribly expensive,” he said.
Though major small and mid-cap indices saw some correction in March following concerns about high valuations, they have bounced back. Shah said this indicates a market that remains optimistic yet vulnerable to adjustments and advised investors to remain vigilant, given premium valuations against historical averages.
In the immediate future, Indian election would be watched carefully by investors. “There could be some nervousness for certain part till the (Indian) election results are out. Even though the nervousness would be much less than usual because most polls seem to suggest a one-way result,” Bhat said.
He added that if there is a thumping majority to one party, then investors will keenly watch the Budget in July. “Generally, the first Budget is the one where they can make all the big changes they want to. Thereafter, there will always be some state election or the other,” he said.
Dhiraj Relli, MD and CEO of HDFC Securities, added that markets could aim higher in FY25 helped by an end to political uncertainty, fresh policy thrust of the new government, expected fall in interest rates and end of the El Nino pattern. However, one should be prepared for intermittent corrections, some of which could be sharp and time-consuming.
The fiscal year has started quite well for investors with both the Nifty and Sensex hitting their fresh lifetime highs of 22,529.95 points and 74,254.62 points on the first trading day of the year.
“The Indian bull market’s duration is indeed notable, but it’s crucial to contextualise it within the broader economic and market fundamentals. While history suggests a typical bull market lifespan of around 5 years, the unique economic recovery post-Covid, structural reforms and sustained domestic consumption could extend the current cycle,” Shah added.