The Indian equity markets closed in 2024 on a mixed note, with a downward trend dominating December. Investors are now looking to closely monitor Dalal Street’s performance in January 2025, as several global and domestic developments are expected to influence market sentiment.
Historically, January has proven to be a tough month for Indian markets. The NSE Nifty 50 has posted losses in 13 of the past 20 years, including a six-year losing streak since 2019. This historical pattern adds to concerns as investors brace for heightened volatility this month.
Donald Trump’s swearing-in as the President of the United States on January 20, 2025, is a pivotal global event. Markets worldwide are expected to react to the policy directions of his administration, particularly on trade, taxation, and international relations.
The Federal Reserve’s potential delay in rate cuts continues to weigh on investor sentiment. The Fed’s stance on interest rates will play a critical role in influencing global capital flows, including foreign institutional investments in Indian equities.
In its latest policy meeting, the Federal Reserve lowered the benchmark interest rate by 25 basis points, bringing it to a target range of 4.25%-4.50%. Officials signalled plans for only two additional rate cuts in 2025, down from the four projected in September, reflecting increased caution amid persistent inflation and stronger-than-expected economic performance.
The Fed revised its GDP growth forecast for 2024 to 2.5%, up from the 2% estimated in September, citing robust economic activity. However, growth is expected to align with the long-term trend of 1.8% from 2026 onward. Inflation estimates were also adjusted upward, with the 2025 forecast rising to 2.5% from 2.1%, and core inflation expected at 2.8% for the same period.
The Indian rupee depreciated by 3% in 2024, pressured by concerns over slower economic growth and the strength of the U.S. dollar. Despite hitting new lows, the rupee remained one of the least volatile currencies globally, with experts predicting reduced headwinds in 2025.
The dollar’s resurgence weighed heavily on emerging-market currencies, including the rupee, as geopolitical events such as the Russia-Ukraine war, the Middle East crisis, and trade disruptions in the Red Sea disrupted exchange rates. Additionally, global monetary policies by major central banks added to the rupee-dollar volatility while impacting other emerging-market currencies.
Scheduled for February 1, the Union Budget is expected to outline key fiscal policies, government spending priorities, and tax reforms. The Budget will be crucial in shaping market expectations, particularly for sectors like infrastructure, FMCG, and BFSI.
Amid high inflation and a surprising economic slowdown, former Reserve Bank of India (RBI) Governor Shaktikanta Das announced that the Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 6.5% for the 11th consecutive time.
The RBI also revised its GDP projection for the financial year 2024-25, cutting it to 6.6% from the earlier estimate of 7.2%. This comes after the country’s GDP growth slowed to a seven-quarter low of 5.4% in the July-September quarter.
Additionally, the MPC reduced the Cash Reserve Ratio (CRR) from 4.5% to 4%, a move aimed at managing inflation and controlling excessive lending. Governor Das further announced that ₹1.16 lakh crore in liquidity would be infused into the banking system to support credit flow and economic stability.
Auto sales, a critical indicator of economic health, will be closely scrutinised in January. The sector’s performance will provide insights into consumer sentiment and demand recovery.
Foreign Institutional Investors (FIIs) remained net buyers of equities in 2024, with ₹3,459 crore invested until December 26. However, FIIs also offloaded over ₹1.15 lakh crore worth of shares in October and November, reflecting a cautious approach. This followed significant buying activity in 2023, where FIIs invested ₹1.71 lakh crore.
Despite these fluctuations, 2024 was a positive year for equity markets. The NSE Nifty 50 gained nearly 10% year-to-date until December 27, while the Nifty Midcap 150 and Nifty Smallcap 250 indices surged by 23% and 26%, respectively.
India’s year-on-year inflation rate, measured by the All India Consumer Price Index (CPI), stood at 5.48% in November 2024. Inflation in rural areas was higher at 5.95%, compared to 4.83% in urban areas. Key sector-specific inflation rates also reflected varying trends.
The All India Consumer Food Price Index (CFPI) surged to 10.87% in October 2024, while housing inflation remained moderate at 2.81%. The All India Electricity Index reported inflation of 5.45% during the same period.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
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