What will drive stocks in 2025? Budget, earnings, and more

A new trading day, a new year and both the Nifty and Sensex have been hovering around key support levels after completing the 9-year winning streak. The question that’s on everyone’s mind is what will the markets do after the phenomenal performance in 2024. Most market experts believe that the growth this year is dependent on 4 factors but the Nifty may scale past 26000.

Shrikant Chouhan, Head Equity Research, Kotak Securities, in conversation with Financial Express.com, outlined that “For 2025 we are expecting markets to do well. But we cannot expect the kind of returns that the markets generated in 2024. We have to see the trends that will emerge from global markets and how corporate earnings will pan out. Consumption continues to be a problem area. Right now we are focussing more on Govt spending. If that is going to come, then it will help boost market sentiment. Inflation is another major factor that the markets are watching out for.”

What investors need to know about Budget, earnings, and 2 other key triggers

Here is a quick look at the 4 key factors that are expected to drive markets in 2025-

• Budget

The Budget for FY26 is barely 1 month away. One of the key aspects that the street is watching out for is whether it can kindle the economic revival. It is seen as a pivotal Budget that will impact the course of the economy and address challenges like inflation, weak private consumption and slowing growth. Cutting personal taxes, making more money available in the hands of the middle class, increasing spending on infrastructure building, and rationalising tariffs to support exports are some of the key expectations of the budget.

• Govt’s capex spending

2024 has been a year of elections but that also impacted the Government spending on infrastructure. Data indicates that a little more than 45% of Budget Estimates have been utilised so far. This is significantly less than the nearly 59% done the previous year. According to experts, the FY25 target is 11.1 trillion and between December to March, the country needs to spend over a trillion a month to come any closer to the targets.

According to Motilal Oswal’s report, “CY25 may alleviate some concerns, with a gradual recovery in corporate earnings and consumption, led by expected increased government spending in early CY25 and improved rural incomes. However, there may be some volatility in global trade and currencies after the new US administration takes charge, and persistent inflation could slow anticipated interest rate cuts.”

• Inflation

Inflation is another major worry for the markets. Though there are some signs of moderation, food inflation continues to be above the comfort zone and well above the 9% mark. After the most recent RBI Monetary Policy Committee meeting in December, The Reserve Bank of India raised India’s Consumer Price Inflation outlook for FY25 to 4.8% from 4.5%. Inflation for Q3 is seen at 5.7% and Q4 at 4.5%.

• Corporate earnings

Corporate earnings have been another worry point for investors. After a rather weak Q2 performance, the street is hopeful about some recovery in Q3 numbers. This is expected to have a direct bearing on the Nifty performance for the year.

Market outlook for 2025

Therefore what are the key levels to watch for the markets? According to Shrikant Chouhan, Head of Equity Research at Kotak Securities, “If the Budget turns positive, then the markets have the potential to move to the next level. We are hoping for 14% earnings growth in FY26- about 1375 on Nifty. This comes to 26100 on the Nifty. That is what our target is. We are not overly bullish but cautiously optimistic on the market.”

Motilal Oswal’s report stated that “After a relentless rise, valuations have moderated from the CY24 highs. The 12-month forward P/E of Nifty-50 trades at 19.9x in Dec’24 (vs. 22.5x in Sep’24) at a discount to its LPA of 20.5x. Notably, Nifty-50’s EPS CAGR of 17% over FY20-25E (at Rs 1,061 in FY25E) has been higher than the index CAGR of 14% during the last five years (ending Dec’24). Further, Nifty-50’s earnings are anticipated to clock an 11% CAGR between FY24 and FY26.”