Kolkata: India’s stock market concluded the financial year 2023-24 on a buoyant note, with the Nifty jumping nearly 31 per cent making it one of the top-performing markets in the world. The index’s performance is also its second-best in the previous 10 years. About one-fifth of the Nifty 500 stocks doubled in FY24. On the other hand, the Reserve Bank of India after hiking its repo rate by a cumulative 250 basis points much less than most of its major peers has kept it untouched since February 2023 as inflation largely remained within the bank's 2% to 6% target range.
With one day to go, the new financial year will kick off with a lot of expectations among the Indians, be it from the stock market or the Reserve Bank of India. If the Central Bank of the country cuts the rate, then the interest outgo on home, car and personal loans will come down giving them a breather.
Expectations from the Indian stock market in FY25
There is a possibility that cyclical sectors, such as metals, could perform well in the next year. IT or consumer staples could take a longer time to catch up, while utilities will see continued outperformance in the next year. Large private sector banks are expected to deliver healthy returns in the next year.
Market sources say that the auto sector may have a softer FY25 than FY24, but the structural trends will remain intact. Key sectors will be private banks, utilities, oil and gas and cyclicals like metals, which are likely to do well in the next 12 months.
The IT sector could take some time, but it may see traction in the year's second half. The IT industry is witnessing moderated growth for FY25, with leading firms like Accenture revising lower their revenue guidance for next year, dented hopes of demand recovery. Given the guidance, the outlook for the IT sector in the near term remains bleak. Other large-cap IT companies, too, may report a cut in revenue guidance of FY 25 in the March quarter Results.
“Foreign Portfolio Investors (FPIs) are investing significantly in India's consumer sectors, such as automotive, FMCG and telecommunications and show strong confidence in these areas. The value of FPIs' investments in consumer-related stocks has surged by 55% to $176 billion over the past 12 months, highlighting increased interest and optimism in India's consumption-driven sectors,” said Mahavir Lunawat, Managing Director, Pantomath Capital Advisors.
The preference for risky assets like equities will continue to remain high among Indian investors. As the Federal Reserve has indicated that it can cut interest rates by three times this year, it may even prompt the Reserve Bank of India to cut rates. The rate cuts, however, may be marginal, said a senior banker, who did not want to be named.
Considering the consistent earnings growth and an easing interest rate environment, the Nifty 50 may deliver a healthy double-digit growth. Apart from Nifty 50 delivering double-digit returns, the overheated small-cap space could see some consolidation on the back of a phenomenal year. The small-cap space is unlikely to see a very sharp correction, but returns are likely to be modest. The small-cap space will be entirely stock-specific in FY25.
The Nifty 50 or large-cap index may deliver slightly better returns than the broader market, but stock picking will remain the key to outperforming the market.
Impact of Lok Sabha elections on the stock market
Market analysts anticipate continued rallies post-election results. Rural sectors like FMCG, agrochemicals and agri-equipment may see growth. SIPs and asset allocation maintenance are recommended for investors to manage market volatility.
“In India, general elections act as one of the key triggers, which significantly impacts the market volatility based on news inflows, sentiment changes and results of pre-poll surveys. It is that lighthouse event, which could navigate the markets for next five years, as it may alter the course of policy decision making, infrastructure project announcement and budgetary allocations," wrote Shriram Way2Wealth in a research note on the 2024 general election picks.
RBI rate cut in FY 25
The Reserve Bank of India (RBI) on Wednesday announced the schedule for the bi-monthly Monetary Policy Committee (MPC) meetings for the new fiscal. The first meeting will be held from April 3-5, while the next will start on June 5, as per an official statement. However, experts that the Central Bank of the country will not announce a rate in the upcoming April MPC meeting.
Even though the inflation trajectory has begun softening, brokerage house Kotak Institutional Equities expects the first repo rate cut to only be in the third quarter of the next financial year FY25. However, prior to rate cuts, the brokerage expects the Reserve Bank of India (RBI) to change its stance to neutral.
"We expect the first repo rate cut only in Q3FY25 conditional on (1) easing food price pressure and (2) the US Fed’s rate cut cycle starting in H2CY24. Before rate cuts, we expect the RBI to change its stance to neutral by the end of Q1FY25. On the liquidity front, we expect the RBI to continue to fine-tune system liquidity to anchor overnight rates closer to the repo rate," said the brokerage.
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