Stocks bottomed out. Here's what 2025 will bring

This report is from CNBC's “Inside India” newsletter this week, which provides timely, insightful news and market commentary on the emerging powerhouse and the big companies behind its meteoric rise. Like what you see? You can subscribe Here.

The Indian stock market did not have the best start this year. Fears of high valuation multiples coupled with reduced earnings expectations have led to a steady decline in the company's value Nice 50.

The index has re-entered correction territory – down 10% – since its recent high in late September.

In fact, the benchmark is currently in the red since the beginning of the year. However, this is not unusual for investors. By my calculations, the Nifty 50 index has turned negative on the fifth trading day of the year in seven of the last 10 years.

But this time it's different. Many analysts entered the new year expressing concerns about elevated valuations and slowing corporate earnings growth.

This is a far cry from the bullish sentiment of the past that the Indian stock market would outperform the competition S&P500which increased by over 20% for the second year in a row.

Equity strategists at HSBC believe the gloomy market sentiment is likely to continue.

“As earnings disappoint – consensus has lowered NIFTY 50 (FY25) growth estimates from 15% to 5% – investors are likely to reassess their positions, limiting market returns,” said the bank's Asia-Pacific strategists led by Herald van der Linde in a note to customers on Thursday. The investment bank downgraded Indian shares to neutral.

Morgan Stanley pointed out that last year, for the first time in eight years, stocks underperformed bonds and gold (which, to be fair, outperformed most global markets).

“We believe that in the long run, equities will lead among financial assets and gold will shine among physical assets,” said Ridham Desai of the investment bank.

Many people also believe that Indian stocks are now ripe for redemption after a long decline.

“India has bottomed out,” Venugopal Garre, a strategist at Bernstein, wrote in a note to clients last week. Garre expects economic growth to accelerate over the next three to six months and urges investors to get ahead of that change. “It is suggested to invest before the economic recovery,” he added. Bernstein expects the Nifty 50 to end the year at 26,500, up 13% from current levels.

Morgan Stanley says the central government is likely to reduce the fiscal deficit in February when it announces its budget, which could lower bond yields and lower borrowing costs for businesses.

This view is shared by equity strategists at Citi. They expect the Indian economy to grow 6.5% this year, helped by growth from government infrastructure spending, which was weak last year.

“We have a constructive view on equity returns given more reasonable market valuations following recent corrections,” Citi's Surendra Goyal said in a note to clients. The investment bank also expects Nifty to end the year at 26,000, up 10.5%.

Indian authorities expect their economy to grow by 6.4% in fiscal year 2024-2025. The Indian National Bureau of Statistics released its first preliminary forecast on Tuesday lowest since 2020 when India's gross domestic product declined by 5.8% due to the pandemic. The estimate is lower than the Reserve Bank of India's forecast of 6.6% for the current financial year. Here's what economists at HSBC and HDFC Bank say think about pricing.

India wants the country's foreign missions to help boost exports. The Indian Ministry of Commerce has approached Indian missions increase market intelligence efforts and identify export opportunities, government sources told CNBC-TV18. Trade chiefs of Indian missions in 20 key countries will gather for a three-day meeting organized by the ministry that will focus on growing exports.

Portfolio manager says Trump's second term will benefit Indian stocks. US President-elect Donald Trump plans to impose high tariffs on Chinese products Geopolitical location of India “beneficial in the era of Trump 2.0,” says Kunal Desai, portfolio manager at GIB Asset Management. “Many Indian companies are reaping the benefits as customers look to adopt a dual-source approach to their supply chain,” Desai said.

India is a 'mixing machine'. Investor interest in India declined towards the end of 2024 due to declines in Indian equities during this period. One portfolio manager, however, remains optimistic about the country. The market decline is a buying opportunity, he says lists three Indian stocks to buy for 2025. (For subscribers only)

Indian stock markets started the year with declines. The Nice 50 the index closed around 23,500 points, down 1.8% from last week.

The yield on the benchmark 10-year Indian government bond has remained steady this year at around 6.76%.

On CNBC this week, BNP Paribas's director of Indian equities Abhiram Eleswarapu believes that Indian markets are currently experiencing a “soft phase” as valuations are at elevated levels. However, this “shallow correction” may end with the markets could return high single digits from March to the end of the year, Eleswarapu said.

Meanwhile, Pulkit Patn, India industrial analyst at Goldman Sachs, noted that the bank expects India's cement industry will expand in the second half of the year, suggesting that “infrastructure spending is coming back.” Government spending, residential real estate and rural spending will account for the bulk of such investment as a result relatively high demand for infrastructure and related materials.