CNBC’s Inside India newsletter: Stocks have ‘bottomed out.’ Here’s what 2025 has in store

This report is from this week’s CNBC’s “Inside India” newsletter which brings you timely, insightful news and market commentary on the emerging powerhouse and the big businesses behind its meteoric rise. Like what you see? You can subscribe here.

The stock market in India hasn’t had the best start to this year. Fears of lofty valuation multiples alongside trimmed earnings expectations have led to a steady decline for the Nifty 50.

The index has now re-entered correction territory – a 10% fall – since its most recent high in late September.

In fact, year to date, the benchmark is now in the red. That’s hardly out of the ordinary for investors, however. By my count, the Nifty 50 turned negative by the fifth trading day of the year in seven of the past 10 years.

However, this time it’s different. Many analysts arrived into the new year raising concerns about elevated valuations and slowing earnings growth at companies.

It’s a far cry from the bullish sentiment of yesteryear that the Indian stock market would race ahead of the S&P 500, which rose by more than 20% for the second year in a row.

Equity strategists at HSBC believe the glum mood gripping markets is likely to continue.

“As earnings disappoint – consensus has cut [financial year 2025] growth estimates for the NIFTY 50 from 15% to 5% – investors will likely re-evaluate their positions, limiting market returns,” said the bank’s Asia Pacific strategists led by Herald van der Linde in a note to clients Thursday. The investment bank downgraded Indian equities to neutral.

Morgan Stanley pointed out that stocks last year, for the first time in eight years, performed worse than bonds and gold (which, to be fair, outperformed most global markets).

“Over the long run, we think equities will lead in financial assets and gold will shine among physical assets,” said the investment bank’s Ridham Desai.

Many also believe that Indian equities, after their long slide, are now ripe for picking.

“India has bottomed out,” wrote Venugopal Garre, strategist at Bernstein, in a note to clients last week. Garre is expecting economic growth to pick up over the next three to six months and is urging investors to get ahead of the turnaround. “Investing ahead of the recovery is suggested,” he added. Bernstein expects the Nifty 50 to end the year at 26,500, up 13% from current levels.

Morgan Stanley says the central government is likely to reduce the fiscal deficit in February when it unveils its budget, which could lower bond yields and reduce borrowing costs for companies.

This view is echoed by equity strategists at Citi. They expect the Indian economy to expand by 6.5% this year, driven by a boost from the government’s infrastructure spending, which was in the doldrums last year.

“We have a constructive outlook on equity returns given the market’s more reasonable valuations post recent corrections,” said Citi’s Surendra Goyal in a note to clients. The investment bank also expects Nifty to end the year at 26,000 – up 10.5%.

India’s authorities expect its economy to grow 6.4% in fiscal year 2024-2025. The Indian National Statistical Office provided its first advance forecast on Tuesday, the lowest since 2020 when India’s gross domestic product shrank 5.8% because of the pandemic. The estimate is lower than the Reserve Bank of India’s projection of 6.6% for the current fiscal year. Here’s what economists at HSBC and HDFC Bank think of the estimate.

India wants the country’s overseas missions to help boost exports. The Indian Commerce Ministry has asked Indian missions to increase market intelligence efforts and identify export opportunities, government sources told CNBC-TV18. Commercial heads from Indian missions in 20 key countries will gather for a three-day meeting, organized by the ministry, that will focus on growing exports.

Trump’s second term will benefit Indian stocks, portfolio manager says. U.S. President-elect Donald Trump’s plans to impose heavy tariffs on China make India’s geopolitical positioning “favorable in this Trump 2.0 era,” according to GIB Asset Management’s portfolio manager Kunal Desai. “A number of Indian companies are taking advantage as customers look to take a dual source approach to their supply chain,” Desai said.

India is a “compounding machine.” Investor interest in India waned at the end of 2024 because of a pullback in Indian equities during that period. One portfolio manager, however, remains bullish on the country. The dip in the market is a buying opportunity, he says, and names three Indian stocks to buy for 2025. [For subscribers only]

Indian stocks started the year sliding. The Nifty 50 index closed around 23,500 points, a decline of 1.8% since last week.

The benchmark 10-year Indian government bond yield has been flat so far this year and has traded around 6.76%.

On CNBC TV this week, BNP Paribas’ head of Indian equities, Abhiram Eleswarapu, thinks Indian markets are going through “a soft phase” at the moment because valuations are at an elevated level. However, this “shallow correction” might be ending, and markets could return high single digits from March until the end of the year, Eleswarapu said.

Meanwhile, Pulkit Patn, India industrials analyst at Goldman Sachs, noted that the bank expects India’s cement industry to expand in the second half of the year, which suggests that “infrastructure spending is coming back.” Government expenditure, residential real estate and rural spending will form the bulk of such investment, resulting in relatively strong demand for infrastructure and related materials.