Indian stock market forecast 2025: Rocky terrain for markets, but milestone 2025 on high ground

Mumbai: Investors must brace for a roller-coaster ride in the stock market in 2025, as the seesaws seen in the latter part of 2024 could spill over into the new year.

Still, Indian equities could notch up gains, with the Nifty expected to touch 25,000-27,500 by December, according to most of the 30 stock market participants surveyed in a poll by ET on what’s in the air for 2025.

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That will however likely happen only after further declines from current levels as investor sentiment remains sour on account of a potent cocktail of foreign selling, slowing corporate earnings, rich share valuations and uncertainty in the US.

The Nifty targets of 78% of the poll participants – including fund managers and brokers – suggest a 5-16% upside over 2024’s closing level of 23,644.80 on Tuesday.

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Local, Global Cues
Of these participants, 22% expect the Nifty to touch 25,000-26,000 in 2025, 17% see the index at 26,000-26,500, while 39% forecast the benchmark at 27,000-27,500 by the end of the year.

In 2024, the Nifty gained 8.8%, extending its winning run to the ninth straight year but upsides were restricted by the sell-off toward the end. After hitting a record of 26,277.35 on September 27, the index has dropped 10% in the past three months.

Dip Before Rebound?
Of the 30 brokers and fund managers surveyed, 71% said the market could fall further from the current level, with 45% expecting a decline of as much as 10%.

The slowdown in corporate earnings growth is one of the key reasons for the wariness. “We are a bit on the cautious side because currently we are going through the earnings imbalance, where we are peeking out from a high range to a lower range,” said Vinit Sambre, head, equities, at DSP Mutual Fund. “As we stabilise and find a sustainable growth number, the market should see some more correction.”

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Some investors are also uneasy about the return of Donald Trump as the US President in January and the impact of his policies on bond yields and the dollar. US stocks remain the hot favourite of global investors in 2025, with the new American president seen stimulating the economy further. But a firmer dollar and rising bond yields could be bad news for emerging markets like India. “Trump’s policies remain uncertain, and the strengthening of the dollar could drag the markets lower,” said Andrew Holland, chief executive at Avendus Capital.

Large Caps Preferred
Within local equities, the poll participants are recommending a bigger exposure to large-cap stocks followed by mid- and small-caps. Among sectors, most participants prefer banks, IT and pharma. They recommended staying away from FMCG, auto and real estate.

“Small and midcap stocks are also likely to feel the pinch of earnings downgrades this time, which makes large caps a safer bet as they are liquid and tend to fall less when the earnings downgrades are likely to be across the board,” said Holland. He sees a major correction in small and mid-cap stocks in 2025 that could dampen investor sentiment.