Investing is all about understanding the tailwinds and headwinds. Your flight to financial prosperity depends on your ability to understand the impact of these conditions. You may choose not to dive deep and rely on professionals to figure it out.
Those who manage your money carefully analyse the financial market situation. Since today’s prices are a function of tomorrow’s profits, all numbers that could influence future profit growth are crunched. From the analysis thus far, the picture is a bit hazy for your investments in 2025.
Inflation and interest rates
The macroeconomic data shows India’s economic growth is slowing, and inflation is stubbornly high. Analysts are revising growth estimates downwards for the financial year 2024-25, and inflation estimates upwards. Food inflation refuses to remain in check.
The Reserve Bank of India’s monetary policy committee will likely be under intense pressure from the government in 2025 to bring down borrowing rates. The government and the RBI may have differing views on the issue. The government may want RBI to lower borrowing rates to stimulate growth. However, the RBI committee will likely continue inflation targeting to ensure India’s economy is not overheated.
Even at the slowest level in several quarters, India is the fastest-growing large economy and will continue to remain so in 2025. The chances of interest rates rapidly going down in 2025 look dim. That means the cost of your loans is likely to stay the same. You may get concessions on refinancing. Banks can offer attractive terms to move your existing loan to them. The year 2025 may be when you could probably bring down the average cost of borrowing. You may want to discuss that with your financial advisor.
Stock markets in 2025
India is no longer the only attractive market for foreign portfolio investors. While they may not sell as aggressively as they did in 2024, US markets will remain the focus of global investors. If returns in American stocks remain attractive, India may see money move out.
At the same time, share prices in China remain cheap despite the rally.
In 2025, more money could flow into China as it remains the cheapest stock market among all emerging markets. India continues to remain the most expensive market in terms of price-earnings multiple. At the same time, the US and China have a declining inflation trend. That should enable their central banks to bring down the cost of borrowing. When that happens, more money flows to equity assets.
With US companies sitting on a record amount of cash and the incoming US presidential policy encouraging local manufacturing and services, US equities could remain an attractive proposition for global investors. As a result, Indian shares are likely to remain sluggish in the first half of 2025. That is because companies’ profit growth is likely to remain lower than in 2023-24. Record money also moved into initial public offerings and qualified institutional placements in 2024.
Mutual funds, which receive a significant net inflow of systematic investment plans, could continue buying into QIPs and IPOs and remain selective about the broader market. For a sustained surge in Indian equities, major companies must report strong profit growth in the next three quarters.
What you can do
Headwinds for the market are factors that create inflation in the economy. Suppose the government consistently brings adequate food items and supplies and reins in the food inflation. In that case, India can have a consumer price inflation rate of around 4% or below. You must watch out for that number in 2025. If it hovers over that persistently, it could dampen equity returns.
If you are new to investing, starting with an index or exchange-traded fund is a good idea. With different tailwinds and headwinds influencing the financial markets, it may be hard to time the
market and find the right moment to buy. Those already investing regularly through mutual funds or directly can continue making systematic investments. You must consider one if you have not engaged a financial advisor yet. Having an independent voice could help you navigate the volatile times in 2025.
Rajas Kelkar
(The author is editor-in-chief at www.moneyminute.in)