Nifty's 2025 twist: Are Indian stocks headed for another record-breaking year?
At the start of 2025, the
Indian equity markets
faced a clouded outlook. Concerns over high valuations, persistent
foreign institutional investor
(FII) outflows, trade wars painted a cautious picture. Then came the India Pakistan tensions, which went out of control for a brief period. However, as we approach mid-year, a confluence of positive developments has shifted the narrative, prompting once gloomy analysts to reassess their projections for investor returns.
Benchmark
Nifty
has surged almost 17% from the lows, setting the stage for another recording breaking year, according to analysts.
Geopolitical easing and trade advancements
A significant turning point was the de-escalation of tensions between India and Pakistan, culminating in a ceasefire agreement. This move alleviated investor concerns about regional instability.
Palak Shah, VP – Institutional Sales, PL Capital, emphasized that the ceasefire restored stability to a region known for its geopolitical volatility. 'Investors were quick to price in the positive development, triggering a strong rally,' she added.
Trade agreements and global tailwinds
Globally, the environment has also turned favorable. The United States has made significant headway in trade negotiations with major partners, including China, the UK, and the European Union. The recently signed
India-UK Free Trade Agreement
(FTA) is expected to benefit sectors like textiles, gems and jewellery, and automotive components.
This deal eliminates tariffs on 99% of Indian exports to the UK, benefiting sectors like textiles, gems and jewellery, and automotive components. In return, India has reduced tariffs on UK exports, including scotch whisky, cosmetics, and medical devices.
Vinit Bolinjkar, Head of Research at
Ventura
, pointed out that such trade deals have not only improved global sentiment but also driven FII inflows into Indian equities.
Better corporate earnings
Beyond geopolitics and global trade, domestic fundamentals have been another pillar of support. Corporate earnings for the fourth quarter have surpassed expectations. According to Siddhartha Khemka, profits of 27 Nifty companies grew by 4% year-on-year (YoY), beating the estimated 2% growth. Among 109
Motilal Oswal Financial Services
(MOFSL)-covered companies, earnings rose by 6% against an expected decline of 2%.
Sectors such as metals, technology, BFSI, and oil and gas led the earnings growth. Metal companies posted a 67% YoY profit surge on a low base, while oil marketing companies (OMCs) delivered a 14% profit growth, defying expectations of a decline.
Valuations: A mixed view
Analysts are mixed on Nifty's valuations. While for some, they remain relatively comfortable, others still point to the expensive nature. It is currently trading at 21.6x FY26 P/E, just 5% above its 10-year average of 20.6x.
Vinit Bolinjkar from Ventura said that while valuations are on the higher side, they are not overly stretched. 'The trend may remain bullish, but intermittent corrections can't be ruled out,' he cautioned.
Palak Shah of PL Capital also mentioned that although valuations have improved, they still have room to go higher. 'With improving macros from both domestic and global perspectives, large-cap stocks are well-positioned to outperform,' she said.
Good monsoon is good news
On the domestic front, favorable monsoon predictions have further improved the outlook. The Indian Meteorological Department (IMD) has forecast above-average rainfall, which, combined with recent tax benefits, is likely to boost rural consumption. This could provide a further push to sectors like consumer goods, automobiles, and retail, which are highly sensitive to rural demand.
Atish Matlawala, Senior Fundamental Analyst at SSJ Finance & Securities, believes that India's strong structural growth story remains intact. 'While Nifty's valuations are not very cheap compared to other emerging markets, India's growth prospects are significantly stronger,' he stated.
What lies ahead?
With the geopolitical overhang easing, improving corporate earnings outlook, and supportive global trade developments, the outlook for Nifty has improved significantly from the start of the year.
Analysts now expect moderate to strong gains for the rest of 2025, with key triggers including the continuation of FII inflows, sustained
corporate earnings growth
, and stable global economic conditions.
FIIs
have also returned as net buyers, injecting over Rs 14,000 crore into Indian markets since the beginning of the month. This reversal of FII flows will be a critical driver of the Nifty rally, which had been under pressure due to sustained outflows earlier in the year.
"The return of FII flows has been a game changer, but this liquidity-driven rally needs earnings to keep pace. Investors should focus on quality stocks rather than chasing momentum," Narendra Solanki, Head of Fundamental Research at Anand Rathi Shares and Stock Brokers said.
"Nifty is well-positioned to deliver healthy returns, even breach highs, through the rest of the year, especially if earnings recovery sustains and global economic risks are contained," Khemka said.
"There is a reasonable likelihood of a positive Nifty return for the year. One cannot predict geopolitical events in the future and there is a reasonable likelihood that the recent hotspots which are seemingly cooling down might not flareup again," said Vikas Gupta, CEO & Chief Investment Strategist at OmniScience Capital.
However, there are cautionary notes. While valuations are not excessively high, they are not cheap either. The possibility of intermittent corrections cannot be ruled out, especially if global risk factors re-emerge.
(
Disclaimer
: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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