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Dear Investors,

After ending CY24 on a strong note, with Nifty gains of ~10%, 2025 could unfold as a tale of two halves. The first half may continue to see market consolidation, while a recovery could take place in the second half. The start of rate cut cycle by RBI, ongoing US rate cuts, and the global policy post Donald Trump taking over as US President in Jan’25 would influence the market direction. Additionally, the Union Budget in Feb’25 will offer important signals over the government spending trends. With a fragile global economic environment and mixed macroeconomic factors at home, the market is expected to remain in consolidation mode in the near term.

Key triggers for 2025

* Domestic Factors: Union Budget, government spending, start of interest rate cut cycle by RBI, FII trends.

* Global factors: Trump trade policy, US interest rates, geopolitical issues, etc.

* Earnings & Valuation: Corporate earnings growth trend and valuations in broader market.

Valuation and Themes:

Nifty climbed to an all-time high of 26,277 in September 2024 led by continued market momentum and strong domestic flows. However, it subsequently corrected by almost 11% from this peak. This led the Nifty valuation to drop to 19.2x 1-year forward P/E, below its 10-year average of ~22x. We expect earnings to gain momentum from H2, and deliver a 16% CAGR over FY25-27E. Moreover, the market correction and the moderation in valuations offer an opportunity to add selective bottom-up stock ideas. We remain optimistic about the long-term trend, given the strength of corporate India’s balance sheets and the prospects for robust, profitable growth.

In terms of sectors, we are positive on BFSI supported by comfortable valuations and improving business growth. We expect a revival in the export sectors (IT, Pharma) with the INR hitting an all time low and demand recovery in key regions. Consumer discretionary segments like jewellery, real estate and travel & tourism are likely to see sustained spending. Niche themes like Capital Market, EMS, Digital e-commerce would continue to report strong earnings growth.

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