It has been a tumultuous year for India’s stock markets. After touching peaks, the markets experienced a significant correction in 2024. While recent declines have tempered early optimism, overvaluation concerns persist, particularly in certain sectors. The shift in global sentiment, with foreign investors turning to China, has added to the woes.
However, a surprising hero has emerged: The domestic retail investor.
Despite the market’s volatility, retail participation has been robust, filling the void. While selling by foreign investors is expected to ease, with some signs already, the global economic conditions remain a key risk. The shifting dynamics indicate a period of uncertainty, promising a mix of opportunity and caution.
Glitter fades
The Nifty 50, the 50-scrip blue-chip index, has posted positive returns again in 2024 but has fallen short of the robust double-digit gains seen in some of the previous years. This mirrors a broader trend of global economic uncertainty and domestic challenges that have impacted the Indian market during the year.
Winners and losers
Real estate and pharmaceuticals have emerged as standout performers, significantly exceeding the broader market. Sectors like media and fast-moving consumer goods (FMCG) have struggled. Other sectors, including auto, information technology, and infrastructure, have posted solid gains, whereas banking and financial services have seen more modest returns.
On the global stage
While global economic headwinds and rising geopolitical tensions have cast a shadow over global markets, India has managed to hold its own and outperform several emerging market peers. However, the high valuations of Indian stocks are still a matter of worry.
Slow earnings, jittery markets
Weak earnings have shaken market confidence. Corporate earnings for the first half of the fiscal year 2024-25 have fallen short of expectations, leading to increased volatility and weak market sentiment. Indian companies’ revenue and net profit growth have been modest. A recovery is expected in the second half, driven by rural demand and increased government spending.
Shifting dynamics
This year, foreign portfolio investors (FPIs) started withdrawing funds from Indian equities and pivoted to China after the country’s massive economic stimulus package. However, retail investors emerged as unexpected heroes, stepping up to the plate. Together with domestic institutions (which largely invest retail money), they have helped counterbalance the impact of FPI outflows.
Young bulls charge the market
While individual investors remain steadfast, the youth are leading the charge. Recent market volatility may have deterred some potential investors, but overall, retail investor sentiment remains strong.
A valuation check
Indian equity markets have experienced a significant rally in 2024, pushing the market capitalization-to-GDP ratio to record highs. Despite recent corrections, the ratio remains elevated compared to historical averages, raising concerns about potential overvaluations.
