November 2024 Market Review & Economic Outlook for 2025

November 2024 was a month of mixed results for the Indian equity markets, as the Nifty 50 index faced fluctuations amidst a combination of domestic and global challenges.

 

KEY DRIVERS OF MARKET MOVEMENT

1. Valuation Concerns and Weaker Q2 Corporate Earnings:
   • The Nifty 50 struggled due to high valuations, which raised concerns about the sustainability of current price levels. Additionally, weaker-than-expected Q2 corporate earnings added to the caution in the market.
2. Global Geopolitical and Economic Tensions:
   • Global factors, including the ongoing Russia-Ukraine conflict, tensions in the Middle East, and uncertainties surrounding the U.S. presidential elections, contributed to global market volatility. The prospect of India’s Assembly polls also created political uncertainty, further clouding the outlook for markets.
3. Foreign Investor Sell-Offs:
   • Foreign Portfolio Investors (FPIs) continued to be net sellers in the Indian equity market. They pulled out ₹45,974 crore in November, though this was a notable improvement from the ₹1.14 lakh crore outflow in October. The easing of FPI outflows provided some respite to the market and raised hopes that foreign investor sentiment may stabilize.
4. Domestic Institutional Investor (DII) Support:
   • On the positive side, the Indian market found support from strong buying by Domestic Institutional Investors (DIIs), who counterbalanced the outflows from FPIs. This helped limit the decline in the Nifty 50 index, which closed the month with a modest dip of just 0.31%.
5. Political Sentiment and Government Expenditure:
   • The BJP’s victory in the Maharashtra Assembly elections lifted sentiment, as it fuelled expectations of increased government capital expenditure, which could provide a much-needed boost to the economy in the coming months.

INDIA’S ECONOMIC OUTLOOK FOR YEAR 2025

India continues to position itself as a bright spot in the global economic landscape, with robust growth projections and an optimistic outlook despite facing some near-term challenges. The country is expected to lead as the fastest-growing major economy in 2025, with a projected GDP growth of 6.8%, underpinned by strong structural drivers and positive policy initiatives.

Key Economic Highlights:

1. GDP Growth:
   • India’s economy is projected to grow by 6.8% in FY25, making it the fastest-growing major economy globally. The country’s growth remains resilient, supported by consumption, services, and infrastructure investments. The Q3 FY25 GDP growth is forecasted at 6.8%, with an even stronger 7.2% growth expected in Q4 FY25.
2. Inflation:
   • Inflation has recently spiked due to disruptions in food prices, particularly due to weather-related issues impacting the kharif (monsoon) crops. However, inflation is expected to moderate, with the average inflation forecast at 4.7% for FY25, improving further to 4.1% in FY26. By Q4 FY25, inflation is projected to ease to around 4.5%, driven by a strong rabi harvest and stabilizing vegetable prices.
3. Monetary Policy Outlook:
   • The Reserve Bank of India (RBI) has signalled a more dovish stance in the near term, with the possibility of interest rate cuts starting as early as February 2025. The repo rate could be reduced from 6.5% to 5.75% by the end of the year, providing a boost to economic activity, particularly for sectors sensitive to interest rates like housing, automobiles, and consumer durables.
4. Corporate Performance and Market Strength:
   • India’s equity market continues to attract both domestic and international investors, bolstered by the country’s strong return on equity (ROE). Around one-third of Indian companies report ROEs above 20%, and the 10-year average ROE stands at 14%, surpassing global peers like Mexico and China.
   • The overall market risk profile for India has improved, with declining volatility compared to other emerging markets. This reflects a more stable and predictable economic environment, which is attractive to investors.
5. Sectoral Drivers of Growth:
   • Agriculture: The kharif grain output has been robust, and the outlook for the rabi crop is promising. Strong agricultural performance is expected to contribute significantly to both GDP growth and inflation control.
   • Services: India’s services sector remains resilient, driven by strong demand across information technology (IT), business process outsourcing (BPO), financial services, and other key industries. The sector’s growth will continue to be a primary driver of GDP.
   • Infrastructure Spending: Government expenditure on infrastructure is also expected to remain high, supporting construction, transport, and urban development projects, which will further boost economic growth.
6. External Environment and Global Uncertainty:
   India’s relatively insulated economy, supported by strong domestic consumption and a diversified industrial base, positions it well to navigate external challenges. Despite global risks such as geopolitical tensions, inflationary pressures, and financial market instability, India’s growth story remains compelling, with a focus on domestic drivers and structural reforms.

 

CHALLENGES TO MONITOR

• Inflation Volatility: While inflation is expected to ease over the next two years, food price volatility and weather-related disruptions could still pose risks to short-term inflation control.
• External Risks: Global uncertainties, including the potential slowdown in global demand, higher commodity prices, and geopolitical risks, could affect India’s export sector and inflation trajectory.
• Corporate Earnings Momentum: Mixed corporate earnings in the September quarter suggest some caution among businesses. However, this may be temporary, and the outlook for FY25 remains largely positive, driven by improving economic conditions and government spending.

MARKET OUTLOOK:

India’s growth outlook for FY25 remains strong and stable, with projected GDP growth of 6.8%, favourable inflation trends, and a supportive monetary policy. Key sectors such as agriculture, services, and infrastructure are expected to be the primary drivers of growth. The equity market’s strength, supported by strong corporate earnings and improving market risk, makes India an attractive investment destination.

Despite the global uncertainty, India’s growth story remains compelling, offering a combination of stability, resilience, and opportunity. The country’s ability to attract both domestic and foreign capital, alongside an improving inflation and interest rate environment, will provide a solid foundation for continued growth into FY26.

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