Opinion Express view on Indian stock market: A volatile 2024, a hopeful 2025

Indian stock markets have had a volatile year. On January 1, 2024, the Sensex was at 72,271. As the year went on, the markets continued their upward trajectory, punctuated by minor corrections, including the fall after the national election results. In July, the Sensex touched 80,000, and by September, it had scaled the 85,000 mark. Thereafter, however, sentiment soured and selling pressures intensified. On December 30, the Sensex ended the day at 78,248, down roughly 9 per cent from its peak. Over the entire year, the Sensex went up 8.2 per cent. The small and midcap indices fared better — the BSE Midcap index is up 25.2 per cent, while Smallcap is up 27.4 per cent.

There are several global and domestic reasons for the correction. The steep upward climb of the markets had raised investor concerns over stretched valuations — in September, the market was trading at a price to earnings ratio of around 25. Economic indicators were also pointing towards a slowing growth momentum, especially in the July-September quarter. The corporate earnings season was subdued, and some firms spoke about the softness in demand. The second quarter GDP data showed that the slowdown was more severe than expected — growth slumped to 5.4 per cent as compared to the central bank’s expectations of 7 per cent. Foreign investors also pulled out, driven, in part, by the rebalancing of global portfolios in favour of China. After investing (net) roughly $12 billion in the first nine months of the year, they sold heavily in October and November. For the full year, net investments by foreign portfolio investors stood at just $311 million, down from $20.7 billion the year before. Global flows are also being influenced by Donald Trump’s victory, the expected policy stance of the new administration, and the US Federal Reserve. Expectations of tariff hikes and higher deficits under a Trump presidency have gained traction. The 10-year US bond yield is at 4.59 per cent. The dollar has strengthened — the dollar index is at 107.6.

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This will continue to impact global markets next year. Trump will be sworn in on January 20. The US Fed has already scaled back its projections of interest rate cuts next year to only two, down from four earlier. A pause in January will increase the probability of rates being higher for longer. Indian markets will also be looking towards the Union budget, and the subsequent meeting of the monetary policy committee, for clarity on how the government and RBI will support the economy during this period of uncertainty.