What to expect in 2025

The Indian economy has shown positive indicators in 2024, notwithstanding the less than projected growth numbers at the fag end of the year. This includes an uptick in the Goods and Services Tax (GST) collections and favourable kharif crop sowing numbers. It is anticipated that the economic growth in the second half of the fiscal year (H2) is likely to surpass expectations. Analysts feel the country’s economic trajectory is poised for dynamic growth in 2025, fuelled by several key sectors.

“As the world’s fifth-largest economy continues to evolve, strategic developments and policy interventions are unlocking opportunities across diverse industries. In 2025, sectors like renewable energy, real estate, infrastructure, healthcare and government capex-linked sectors are likely to gain prominence,” says Palka Arora Chopra, director of Master Capital Services Ltd.

According to Rajesh Bhatia, Chief Investment Officer, ITI AMC, “We expect India’s structural long-term growth story to remain intact, driven by favourable demographics and stable governance. Capex cycle revival, financial services, especially private banks, information technology, healthcare, pharma and capital goods are the sectors to look out for in the coming year.”

2024 Trends

• The Indian equity markets remained resilient for a major part of the 2024 calendar year, despite challenges posed by sticky inflation, weaker than expected FY25 quarter two earnings, General Election’s outcome, FII outflows and global geopolitical uncertainty.
• 2024 brought significant fluctuations to the equity market, with the benchmark index NIFTY50 reaching an all-time high of 26,277, reflecting a 10 per cent year-to-date increase.
• Amid this market momentum, certain sectors took the lead, particularly Nifty Realty, Nifty Pharma and Nifty Auto. These sectors not only surpassed broader market indices, but also garnered considerable attention from investors owing to their growth potential and solid fundamentals.
• IT and BFSI (Banking, Financial Services, and Insurance) sectors showed resilience, driven by discretionary spending and strong hiring trends.
• Defence and renewable energy stocks surged during the year, benefiting from government initiatives and global sustainability trends.

Narendra Solanki, head of Fundamental Research-Investment Services, Anand Rathi Shares and Stock Brokers, says, “Domestically, we remain optimistic about several sectors such as agro-chemicals, automotive, cement, consumer durables and large banks. They are poised for growth.”

Sectors to watch out for

Renewable energy: The Central government has set a goal of 500 GW by 2030. With global partnerships and government incentives, the renewable energy sector is set to become a significant contributor to the GDP and employment.

Real estate and infrastructure: The infrastructure sector is at the forefront of India’s economic growth, with various mega projects and increased government spending. Additionally, the real estate market is experiencing resurgence, driven by rapid urbanisation, affordable housing schemes, and expansion of IT hubs and logistics parks.

Healthcare & pharma: The Indian healthcare sector is undergoing a dynamic transformation, characterised by technological advancements and a growing emphasis on healthcare. Moreover, the adoption of telemedicine and digital health platforms is revolutionising healthcare delivery in urban and rural areas alike. Additionally, the market for small molecule drug discovery is expanding, with notable increases in R&D spending that are expected to bolster the pharma sector further.

Agro-chemicals: Supported by strong agricultural activity and favourable rural dynamics, the agro-chemicals sector is poised to do well.

Automotive sector: Driven by improving consumer sentiment and increasing disposable incomes, it is anticipated that the sale of two-wheelers and passenger vehicles will exceed expectations.

Cement: Benefiting from increased infrastructure spending and robust construction activity, the demand for cement is looking bullish in the near future.

Consumer durables: The domestic consumer durables market is likely to gain prominence in 2025, supported by festive season demand and rising urban consumption.

Large banks: They are positioned to outperform due to strong credit growth, improving asset quality and structural tailwinds in the financial sector.

Capex cycle revival: Both the Central government and listed corporations are likely to increase their investment in 2025. Corporate order books are expanding across various sectors, and the number of ongoing projects has reached its highest level since 2017. Private sector investment is projected to hit a decadal high of Rs 55,122 billion.

Information technology: India’s IT services sector is set to experience a sustained growth trajectory, based on increasing investments in emerging technologies such as Artificial Intelligence (AI), blockchain and cybersecurity.

Capital markets’ performance

In 2024, the Indian capital markets reflected a balanced mix of growth and robust economic fundamentals. The market was shaped by an amalgamation of domestic political events, government reforms, global economic challenges and sectoral developments.

According to Palka Arora Chopra, director of Master Capital Services Ltd, investors looking towards the Indian stock market in 2025 can expect opportunities, “but with caution shaped by economic growth projections, corporate earnings and broader market dynamics”.

“Given the current high valuation levels and potential downgrades in earnings’ forecasts, the market may experience range-bound trading in the near term. Certain sectors in the market could emerge as promising for investors. These pertain to better growth opportunities like real estate, infrastructure, healthcare and renewable energy,” she adds.

Tanvi Kanchan, Head-Strategy, Anand Rathi Shares and Stock Brokers, says that looking ahead to 2025, “Global and domestic economies remain stable, but slow. Easing inflation, interest rates and crude prices are positives for India, though high valuations remain a concern. Investors must stay selective, focusing on sectors poised for sustainable growth amid a cautiously optimistic outlook.”

investment sentiment

Over the past decade, there has been a shift in investors’ preferences when it comes to asset classes, as backed by a significant change in household financial savings.

“In 2011-12, almost 57 per cent of household savings were held in bank deposits. However, this figure has dropped to 37 per cent and at the same time, interest in equity investments has risen sharply, increasing from 7.3 per cent in 2012 to 16.4 per cent today. This trend is expected to continue, with more investors likely to shift toward equity investing,” says Harpreet Punj, director and unit head, Anand Rathi Wealth Limited, Chandigarh.

Additionally, there is growing awareness among investors about the importance of beating inflation and generating real returns. The rise of technology has further facilitated this shift, making it easier for investors to start investing in SIPs from anywhere in the country.

“We believe that these factors will continue to play a significant role in shaping investor preferences,” Punj adds.

According to Master Capital Services Ltd, looking ahead to 2025, the state of the world economy appears to be a combination of uncertainty and recovery. “A number of variables, including inflation, interest rates and geopolitical concerns, are causing major economies to grow at different rates. With a strong domestic consumption, infrastructure development and government programmes, India’s economy is predicted to rise and draw in both global and local investment. While rural development and increased agricultural expenditure may benefit FMCG and agri-tech industries, the government’s emphasis on manufacturing through programmes like PLI (production-linked incentives) would support industrial and export-oriented sectors,” feels Chopra.

Long-term sustainable growth, she adds, is becoming more and more important to investors than quick liquidity gains. “This change is a result of a wider understanding of how crucial sustainability is to boosting future profitability.”

Rajesh Bhatia, Chief Investment Officer, ITI AMC, feels that Indian equities are expected to perform strongly in the coming year. “In the short term, though, slowing economic growth, high starting valuations and weak earnings-per-share revisions could keep markets range bound.”