At the start of Samvat 2080, the market outlook was generally positive, albeit mixed due to global uncertainties and a robust domestic economy. There were concerns that the domestic economy and foreign investment inflows might be sluggish based on global factors. Increased global tensions caused by conflicts in Ukraine and Palestine, increased inflation and rising interest rates added to the uncertainty. However, Samvat’s performance in 2080 exceeded expectations. This is because geopolitical risk has become local and the US economy has grown much better than consensus, and has not been affected by inflation or interest rates.
We recommended that retail investors diversify their portfolios by investing across multiple asset classes, including stocks, bonds, gold and cash, to increase diversification and reduce risk. We believed that each of these categories offered strong investment opportunities and also strengthened the portfolio in the event of an increase in volatility. At the time, the Indian economy was predicted to grow well based on reforms and inherent local demand. Valuations were considered reasonable, neither overly expensive nor cheap, as the global market had corrected due to geopolitical tensions and rising interest rates. However, it was crucial to be selective in terms of stocks and sectors as some domestic areas were expensive and sensitive to global uncertainties. We preferred large caps. At that time, corporate bonds generated a decent coupon rate of at least 8% to 11.25% up to an A rating. Gold was also viewed positively due to central bank demand, INR depreciation, geo-tension, high inflation and slowdown in global economy.
All these asset classes performed well. The broad market returned 30.7% and gold 32.1% in Samvat 2080. The market exceeded expectations due to strong inflows from domestic retail companies, leading to notable performance in mid- and small-cap stocks, contrary to expectations of large-cap stocks to outperform. Nifty100 returned 28.2%, while Niftymidcap100 returned 36.9%. After the initial setbacks, performance improved significantly after the national elections, thanks to a recovery in retail inflows.
Summarize 2081
Looking ahead to Samvat 2081, our outlook remains largely unchanged from 2080. Expectations are modest after strong returns in both SAMVAT 2079 and Samvat 2080. Especially for Mid & Small caps, Niftymidcap100 and Niftysmlcap100 have 32.9 & 36.9 % and 38.7% delivered. & 37.6% respectively. The premium valuations of mid-cap to large cap are at a high level and their earnings growth is declining. We recommend continuing with a multi-asset strategy. We maintain a preference for large caps over midcaps and remain positive on gold, driven by the expected rate cut in 2025, central bank diversification strategies, a global economic slowdown and heightened geopolitical tensions.
We expect the start of Samvat in November to be positive, in the wake of the October correction. However, volatility is expected to persist in the first quarters due to a sharp correction in corporate earnings and anticipation of a contraction in Indian premium valuations. A clearer understanding of FY26 earnings growth is expected to emerge in the December-January period. In the long term, we expect earnings growth in India to be stable at 12-15%, leading to a positive long-term outlook.
After the initial consolidation, we expect the market to improve due to a reduction in interest rates and a reduction in global inflation, which could boost domestic future corporate earnings. We also expect the Indian stock market to be moderately affected by global volatility, cushioned by strong domestic inflows. This resilience was demonstrated during the FII sell-off in October, which saw record net outflows ₹1 lakh crore by FIIs was effectively offset by equivalent net inflows from DIIs.
In this environment, we expect domestic demand-driven sectors, particularly consumer stocks, to outperform the broader market. This view is at odds with current FMCG sales due to weak second quarter results. We expect the current challenges of high input costs (soft raw materials) to diminish by 2025. Overall, we expect domestically oriented stocks to outperform amid a global slowdown. Other promising sectors are infrastructure, new generation companies, manufacturing and chemicals. This outlook is based on expectations of a stable domestic economy, an expected decline in domestic inflation and the positive impact of the China Plus Strategy (PLI) on business growth. Additionally, we are bullish on large private banks and NBFCs, which are currently trading below long-term average valuation due to an increase in operational risk. We expect NPA levels to moderate and the RBI to cut interest rates in 2025.
