Navigating 2025: Adopt Moderation, Resilience and Stock-Specific Strategies

As we step into 2025, the Indian equity market stands at a critical juncture. The past nine years have rewarded investors with consistent positive returns – never in the history of the Indian equity market have we seen such a long streak of positive returns. The closest we saw was the historic bull run of seven years between 1988 and 1994. However, the question that looms large with most of you is: Will 2025 sustain this momentum, or is the market poised for a more measured trajectory? A recent Reuters poll forecasts 9 per cent gain in frontline indices by the end of 2025.

While this indicates yet another year of positive returns, the pace of growth is expected to moderate compared to the exuberance of recent years. This slowdown stems primarily from higher valuations and slowing earnings growth, compounded by global uncertainties that call for a recalibrated investment approach. One of the key external challenges arises from geopolitical shifts, particularly the impact of Donald Trump’s presidency in the United States. Early signals suggest policy changes that may disrupt global trade flows, potentially affecting India’s exportdriven sectors, especially IT services.

Additionally, a strong US dollar and rising bond yields have triggered foreign investor outflows from the emerging markets, including India, adding pressure to the domestic equity market. However, despite these headwinds, there are reasons for measured optimism. India’s domestic liquidity, underpinned by robust domestic institutional investments and retail participation, remains a vital cushion against volatility. Furthermore, government spending and a strong rabi harvest could help revive consumption demand, albeit at a gradual pace.

While the first half of 2025 may witness market corrections, the latter half holds promise for stabilisation and recovery as the macroeconomic conditions improve. From a sectoral perspective, you should adopt a defensive stance. IT, pharmaceuticals and financials appear better positioned to weather near-term uncertainties and sustain earnings growth. Conversely, consumption stocks, which have exhibited weakness, may require patience as they gradually recover from subdued demand trends. Industrial stocks tied to capital expenditure cycles may face valuation challenges, making selectivity crucial.

Earnings growth for FY26 is estimated to be between 10-12 per cent, but this projection might require recalibration as optimism is already priced into the current valuations. Investors should brace for another year of single-digit earnings growth, underscoring the need for stock-specific strategies over broad-based investments. While uncertainties dominate the short-term outlook, India’s structural strengths offer long-term resilience. A domestic-driven economy, political stability, and consistent policy direction continue to make India a compelling destination for global capital.

The key trigger for upside remains global stability, particularly the weakening of the US dollar and softening bond yields, which could reignite FII inflows and boost returns. To conclude, 2025 is unlikely to deliver the spectacular returns of past years, but it promises opportunities for disciplined investors. The focus must shift from chasing quick gains to selective, bottom-up stock-picking supported by sound fundamentals. As always, resilience and adaptability will define success in the evolving market landscape. Hence, navigate 2025 with patience, prudence and optimism! Wishing all our readers a prosperous, fulfilling and successful New Year!

RAJESH V PADODE
Managing Director & Editor