FY24 was a milestone year for the Indian stock market. Notwithstanding intermittent volatilities, most indices touched record highs, even outperforming some of its global peers. If the benchmark BSE Sensex and Nifty jumped a jaunty 25 percent and 28 percent, respectively, during the year, the Nifty Smallcap 100, Nifty Smallcap 250, and the Nifty Midcap 100 each gained more than 60 percent, attracting the regulator’s attention.
In fact, despite suffering a whiplash in recent weeks, the mid and smallcap segments fared well to close as star performers, surpassing even benchmark indices by a wide margin. India even overtook Hong Kong to emerge as the world’s fourth-largest market, while the overall market capitalisation inched closer to the magical $5-trillion mark at $4.7 trillion.
Clearly, the Indian equities market remained an outlier, having weathered a series of setbacks such as global uncertainties, stringent monetary tightening, a US banking crisis, rising bond yields, and geopolitical conflicts. But driven by strong macroeconomic fundamentals, Indian equities showed remarkable resilience that was further bolstered by strong inflows from both mutual funds and foreign portfolio investors, who bought shares worth Rs 1.9 lakh crore and Rs 2 lakh crore, respectively.
Going forward, markets will be driven by a sustained growth in corporate earnings, policy continuity and a favourable geopolitical landscape. The biggest positive among all factors includes robust domestic economic growth forecasts, which suggest a positive outlook for the stock markets in FY25. A resilient banking sector and lean corporate balance sheets will provide additional heft to the private investment cycle and spur growth.
That said, market participants should remain vigilant given the upcoming elections both in India and the US. Some of the other triggers to watch out for include protectionist trade policies, geopolitical conflicts, the volatile nature for global oil prices and finally the soft landing of the US economy.
As for easing of monetary policy, markets have already tempered expectations of rate cuts from the initial 6-7 cuts in 2024 to three. Any further deviation from this will upset the ongoing relief rally. On balance, FY25 could be a year when investors may have to stand on guard to handle unforeseen circumstances which can swing sentiment from optimism to pessimism in no time.