2024 has been a roller-coaster ride for the Indian economy with higher inflation and borrowing costs and hurting consumer’s purchasing power. In the April-June 2024 quarter, India’s GDP growth rate was robust at 6.7% but it fell to 5.4% in the July-September quarter.
For FY25, S&P Global has kept India’s GDP growth rate at 6.8% and RBI also kept it at 6.6% with India still being the fastest-growing economy among other emerging markets.
Nifty 50 has generated a positive 17.40% return in the last 1-year (as on December 9, 2024). On September 26, 2024, Nifty touched a peak of 26,216.05 points. But the FII selling, global wars, and uncertainty over the US interest rate outlook took Nifty down to 24,620 points (on December 9, 2024).
As per Goldman Sachs’ findings, Nifty is all set to touch 27,000 points by the end of 2025 with positive earnings and export-led sector growth.
Key Trends and Policies Shaping the Indian Economy
In 2024, the IT sector volatility, the Russia-Ukraine war, US inflationary pressure, Trump winning the election, and the Fed rate cut are the prime factors that impacted the Indian market as well. The Modi government started its third tenure, and the Viksit Bharat-led Union Budget 2024-25 brought back stability to the economy.
Make in India, launched in 2014, is going strong with eased FDI regulations. India is getting FDI of $70 – $80 billion every year and it is expected to rise to $100 billion per annum in the future. With an outlay of ₹1.97 lakh crores in 14 sectors, the PLI Scheme has increased India’s production value to ₹12.50 lakh crores from 2020 to August 2024.
Key Sectors to Focus on 2025:
Electronics and Semiconductors
The PLI scheme on large-scale electronics turned India into a net exporter of mobile phones in FY24. Exports reached 5 crore units and FDI has risen by 254% since the inception of the PLI Scheme. India’s semiconductor industry is also set to triple with a production value of $300 billion by FY26 through the push of the Modified Scheme for Setting up Semiconductor Fabs.
Renewable Energy and EV
India’s renewable energy sector will continue to shine under the National Green Hydrogen Mission and is working to achieve the 500 GW target by 2030. The anticipated FAME III subsidy, EMPS, and the PLI Scheme for Advanced Chemistry Cells Battery further incentivize local manufacturing, and increase the competitiveness of electric vehicles.
Healthcare and Pharmaceuticals
In India, the healthcare and pharmaceutical industry are growing rapidly with technological innovations. Schemes like Ayushman Bharat and 100% FDI allowance are the key push factors for this sector. The PLI scheme has bolstered India’s pharmaceutical industry and made it the third-largest market by volume.
Infrastructure
In the Union Budget 2024-25, the infrastructure sector allocation was 3.4% of the GDP and it can increase to 6.5% of GDP by FY29 as per Morgan Stanley report. Some of the promising initiatives such as the National Infrastructure Pipeline (NIP), Smart Cities Mission, and PM GatiShakti Master Plan will continue to drive the infrastructure sector in coming years as well.
Defence
The defence sector has got the allocation of ₹6.22 lakh crores in the Union Budget 2024-25, 4.79% higher than FY 2023-24. Before 2014, India imported 65% – 70% of the total defence equipment, and in 2024, India manufactured 65% of defence equipment. Currently, there are 16 defence PSUs, 430 licensed companies, and 16,000 MSMEs that are boosting India’s defence production.
Market Sentiment and Investor Behaviour
In 2024, FIIs were net sellers of equities in India due to higher US bond yields, a stronger dollar, and potential higher returns from Chinese stock markets. The rebound in India’s company earnings and Trump’s impact on China may attract FIIs back in 2025.
DIIs cushioned the market with increased monthly SIP contributions, rising from ₹20,371 crores in April 2024 to ₹25,323 crores in October 2024. According to the latest findings, mutual funds monthly SIP inflows are expected to reach ₹1 trillion by 2030.
Challenges Ahead and 2025 Outlook
Currently, India is facing challenges like high inflation, falling wages, and weak corporate earnings. However, the RBI’s neutral stand on the repo rate and a 50 bps CRR cut may boost liquidity and consumer spending. Tension between the US and China can provide India with a strategic advantage. India’s largest exporting destination is the US, with a trade surplus in FY24.
In October 2024, IIP increased by 3.5% YoY after the August fall. The fiscal deficit narrowed by 32.4% YoY to ₹4.7 lakh crores in the first half of FY25 with great revenue support. The stable government policies, the expectation of the recovery in earnings especially in export-focused sectors, and the growing mutual fund SIP will fuel the Indian economy and can strengthen the investor’s trust in India’s stock market in 2025.
(The author is Chairman & Managing Director of SMC Global Securities Limited; Views are presonal)
