Outlook 2025: Indian stock market to stay buoyant in 2025, says ITI MF, suggests 5 sectors & themes to bet on

Market outlook: The Indian equity markets remained resilient for a major part of the calendar year (CY) 2024, despite challenges posed by sticky inflation, weaker-than-expected Q2FY25 earnings, general election outcomes, FII outflows, and geopolitical uncertainty.

Despite these headwinds, India’s benchmark indices, the Nifty 50 and Sensex, delivered positive returns of 11.35% and 11% in CY24 so far. Even more impressive has been the performance of the broader market, which outperformed the benchmark indices, with the Nifty Midcap 100 index gaining 27.20% and the Nifty Smallcap 100 index surging by 27%.

Looking ahead to CY2025, ITI Mutual Fund has highlighted several key global and domestic factors that could influence the markets. It expects continued trade friction, challenges in China, and global uncertainty to pressure the fiscal positions of major economies.

In developed markets, it said the focus of policy may shift from controlling inflation to creating jobs. India seems to be no exception to the heightened volatility but currently appears to be relatively insulated against global shocks like tariffs levied post-change in the US Presidency.

Various key sectors are poised for substantial growth, even as the broader economy shows signs of moderation, ITI underscored.

The central bank has cut India’s GDP growth rate estimates for FY25 to 6.6% from 7.2% earlier. This decelerated growth rate is, in part, due to the declining growth of public capital expenditure. That said, ITI Mutual Fund expects India’s structural long-term growth story to remain intact, driven by favourable demographics and stable governance.

Themes and sectors to watch in 2025

Given the expectations for continued growth, ITI Mutual Fund anticipates the following sectors to drive performance in 2025:

Capex Cycle Revival: India is undergoing a multi-year capital expenditure cycle that will provide a strong foundation for future economic growth. Both the central government and listed corporations are expected to increase investments in 2025, with corporate order books expanding across sectors.

The number of ongoing projects has reached its highest level since 2017, and private-sector investment is set to hit a decadal high of ₹55,122 billion. This broad-based growth phase is expected to accelerate in the coming years.

Financial Services – Private Banks: The financial services sector is promising, showing resilience, with a narrowing gap between bank credit growth and deposit growth, which is expected to ease margin pressures.

The banking sector has posted strong return ratios and improved capital adequacy levels, reducing the need for fresh capital infusion. Valuations of private sector banks remain attractive compared to the broader market, indicating stability and long-term growth potential.

Information Technology: India’s IT services sector is set for sustained growth, driven by investments in emerging technologies such as artificial intelligence (AI), blockchain, and cybersecurity.

Cloud services continue to see strong demand, positioning India as a key player in the global tech ecosystem. The rise of generative AI, with demand expected to grow 15-fold from 2022 to 2027, presents a significant opportunity for Indian IT companies.

Healthcare and Pharma: Healthcare spending in India is set for continued growth, fueled by rising per capita GDP and an ageing population. India’s pharmaceutical and vaccine production capabilities position the country well to meet the growing global demand for healthcare services.

Additionally, the country is emerging as a preferred outsourcing destination, especially in contract development and manufacturing organizations (CDMOs). The Indian CDMO market, currently valued at $22.51 billion in 2024, is expected to grow to $44.6 billion by 2029, at a CAGR of 14.7%.

Capital Goods: The capital goods sector, including sub-sectors like electrical equipment, plant equipment, and mining machinery, stands to benefit from the government’s infrastructure spending and initiatives such as the Production Linked Incentive (PLI) scheme.

These investments are expected to bolster manufacturing capabilities and strengthen India’s industrial base, providing substantial growth potential for the capital goods market in the coming years.

Rajesh Bhatia, Chief Investment Officer at ITI AMC, said, “Indian equities are expected to perform strongly in the coming year. In the short term, however, slowing economic growth, high starting valuations, and weak earnings-per-share revisions could keep markets rangebound. We believe sectors like private banks, IT, digital commerce, capital goods, and pharma, among others, may have a clearer path to stronger earnings and are expected to perform well.”

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.