Indian equity markets are looking forward to a potentially resilient yet volatile Vikram Samvat 2081, after strong performance in Samvat 2080. Over the past year, the BSE Sensex and NSE Nifty delivered robust returns of nearly 23% and 24% respectively, marking record highs. despite global uncertainties. As the new financial year progresses, factors such as geopolitical tensions, valuation concerns, foreign outflows and inflationary pressures could shape the market’s trajectory.
As Samvat 2081 dawns, analysts expect measured market performance as several critical challenges loom. Foreign institutional investors (FIIs), who bought a net Rs 86,928 crore worth of Indian equities during Samvat 2080, have recently focused on cheaper markets in China and Japan, leading to the outflow of Rs 88,818 crore from Indian equities in October. With Chinese and Japanese stocks offering more attractive valuations, FII flows into Indian markets may remain under pressure. The twelve-month forward price-earnings (P/E) ratios of BSE Sensex and Nifty50 stood at 24.1x and 23.7x, respectively, at the end of October 2024. booking.
Corporate profit growth, a crucial factor for sustainable investor confidence, is showing signs of slowing. The recent earnings season reported subdued performance, with large companies’ adjusted net profit growing just 5% year-on-year in the second quarter of FY25, significantly lower than last year’s 16% growth over the same period. This slower growth, if sustained, could hamper investor sentiment and lead to cautious market behavior in the coming quarters.
Geopolitical concerns
Geopolitical factors continue to pose risks to market stability. Tensions between Iran and Israel, in addition to the ongoing conflict between Russia and Ukraine, remain a concern, especially as potential escalations could disrupt global oil supplies and drive up oil prices. Higher oil prices, coupled with higher vegetable prices due to uneven monsoon patterns, could put additional pressure on India’s inflation trajectory. The Reserve Bank of India (RBI) could thus remain cautious about rate cuts, pending continued inflationary easing to provide room for monetary easing – a slowdown that could dampen near-term growth expectations.
Despite these challenges, the Indian economy is expected to maintain robust fundamentals, with real GDP growth projected at 7.2% for FY25, supported by recovering rural demand and stable urban spending. While the RBI has suggested a slight downward revision in GDP estimates for the second quarter of 2025, optimism remains for the second half of 2025 as investment activity gains momentum. Moreover, a recent correction has pushed the Nifty’s forward price-to-earnings ratio closer to historical averages, suggesting that valuations are not overly high. This could attract domestic investors and avoid significant downside risks.
Overall, market stability is expected in the upcoming Samvat 2081, although volatility may emerge due to domestic and global factors including India’s state elections, US presidential election outcomes and ongoing geopolitical risks. While earnings growth and monetary policy developments will be closely monitored, Indian markets enter the new year with a cautiously optimistic outlook.
