India’s battered stock market is expected to experience a gradual recovery in 2025 after its most severe consecutive monthly decline in nearly three decades, according to a Reuters poll of equity analysts. The outlook is notably more pessimistic than three months ago, as the country’s economic slowdown and weak corporate earnings continue to weigh heavily on investor sentiment.
The Nifty 50 index, which has fallen about 14% from its peak in late September 2024, is currently on the verge of its longest losing streak since 1996. Despite some optimism about a recovery, analysts forecast a modest rebound with the index rising by more than 6% to 24,000 by mid-2025, and potentially reaching 25,689 by the end of the year. However, forecasts for end-2025 range widely, from a 16% drop to a 28% rise, reflecting deep uncertainty in the market.
The BSE Sensex is expected to climb to 78,500 by mid-2025 and 80,850 by the year’s end, still falling short of its all-time high of 85,978 in September 2024. These predictions represent the first significant downgrades in market expectations since the November 2023 survey, underscoring growing concerns about the country’s economic trajectory.
Struggling Economy and Investor Exodus
India’s economy, Asia’s third-largest, has been hit hard by high inflation, sluggish consumer spending, and weak GDP growth, leading to a significant contraction in corporate profits. Since October, foreign investors have pulled out $25 billion from Indian equities, reversing the country’s position as one of Asia’s top-performing markets.
The Indian rupee has also taken a beating, hitting record lows, making the country’s already expensive stock market even less attractive to foreign investors. This combination of economic challenges and currency depreciation has left many analysts cautious about a rapid recovery.
Analyst Perspectives: A Gradual Recovery Ahead
Despite the grim outlook, some analysts remain hopeful that the market will find its footing in the coming months. Yogesh Kalinge, associate director of research at A.K. Capital Services, emphasized that while markets will recover gradually, it will likely be driven by buy-the-dip trades and the exhaustion of selling pressure. He pointed out that valuations remain stretched, and corporate earnings are unlikely to see a significant rebound as consumption remains sluggish.
Nifty 50 companies have reported only 5% earnings growth in the latest quarter, marking the third consecutive quarter of single-digit gains after two years of strong double-digit growth. Analysts expect slower corporate earnings in 2025, with 15 of 24 analysts predicting a slowdown and only 9 expecting faster growth.
Challenges Facing Key Sectors
Several sectors are expected to face continued headwinds, especially IT, pharma, and specialty chemicals, due to inflationary pressures and rising unemployment. In addition, concerns over rising stress in retail loans, particularly in unsecured credit, are emerging as risks to the market’s stability.
While Finance Minister Nirmala Sitharaman’s budget in February 2025 introduced tax exemptions for annual incomes up to 1.2 million rupees, analysts remain skeptical about its immediate impact on consumer spending and corporate earnings. As Anil Manghnani, director at Modern Shares and Stockbrokers, noted, any changes in consumer behavior take time and may not be immediately reflected in company revenues.
Future Outlook: Weak Demand Could Persist
Looking ahead, Ajit Mishra, senior vice president of research at Religare Broking, warned that rising unemployment and inflationary pressures could continue to drag on export-driven sectors. The Reserve Bank of India’s (RBI) expected rate cuts, aimed at boosting growth, may also signal underlying weakness in demand, making it difficult for the stock market to sustain long-term momentum.
While the market sentiment remains largely driven by emotions like greed and fear, Mishra believes that if rate cuts do occur, they could signal more significant challenges in the economy.
In summary, India’s stock market is expected to recover slowly, with modest gains forecasted for 2025. However, persistent economic challenges, high valuations, and slow consumer recovery mean that a return to the highs of last year is unlikely in the near future. Investors should remain cautious and watch for signs of sustained growth before expecting a significant rebound.
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