Market Outlook 2025: FII outflow, inflation among key market risks this yr

Market Outlook 2025: As we enter 2025, here are some of the risks and challenges that the Indian markets could face in 2025 going ahead

Stock Market Outlook 2025: In 2024, the Indian stock market gave decent returns to investors with the BSE Sensex rising 8.2 per cent and the National Stock Exchange (NSE) Nifty50 climbing 8.8 per cent.

 

From foreign institutional investors' (FIIs) heavy selling, weak corporate results in the second quarter, and unfavourable weather conditions to geopolitical tensions between Iran-Israel and Russia-Ukraine, delayed interest rate cuts amid sticky inflation, and unexpected Lok Sabha 2024 (General) elections, many unexpected risks weighed on market sentiment in 2024.

 

As we welcome new year 2025, here are key risks that investors need to watch out for:

 

FPI selling:

 

Foreign portfolio investors were one of the major driving forces of the markets in 2024. The massive selling of Rs 94,017 crore and Rs 21,612 crore in October and November, respectively, pulled the benchmark indices down nearly 9 per cent from their record high levels, hit in September.

 

Overall, foreign portfolio investors (FPIs) net bought Indian shares worth just Rs 427 crore in 2024, down from Rs 1.7 trillion invested in Indian markets in 2023. If this trend continues, analysts said upside in the markets may be limited in 2025.

 

Earnings slowdown:

As per Motilal Oswal Financial Services, Nifty500 companies reported flat earnings in Q2FY25, declining 1 per cent year-on-year (Y-o-Y). Aggregate sales/Ebitda grew 7 per cent/3 per cent to Rs 33.2 trillion/Rs 6.7 trillion, while adjusted profit after tax (PAT) inched lower by 1 per cent Y-o-Y to Rs 3.4 trillion. Ebitda refers to earnings before interest, tax, amortisation, and depreciation.

 

Palka Arora Chopra. Director, Master Capital Services believes any deceleration in corporate earnings further could undermine investor confidence and weigh on market valuations.

 

Sticky inflation

Consumer price index (CPI)-based inflation has been hovering above 5 per cent for quite some time now. Failure to bring the inflation down, triggered especially by higher vegetable prices, may delay a cut in interest rates in 2025.

 

The Reserve Bank of India (RBI) has said that inflation has been on the upside, while there has been a moderation in growth. The Monetary Policy Committee (MPC), therefore, has decided to wait for better visibility on growth and inflation before taking any decision on interest rate cut.

 

Globally, the Federal Reserve in its policy decision on December 18, 2024, cut the interest rate by 25 basis points (bps). However, in its statement announcing the cut, the Fed now projects just two interest rate cuts for 2025 down from four projected earlier.

 

Geopolitical concerns:

The geopolitical tensions between Iran-Israel, and Russia-Ukraine kept investors on the edge in 2024. G Chokkalingam, founder, Equinomics Research believes if the ongoing wars between Iran-Israel and Russia-Ukraine extend and other countries participate as well, political tensions can lead to stress in the Indian markets.

 

Moreover, any escalation in the West Asia war may push oil prices northward as the two countries are major oil exporters in the world.

 

Donald Trump's tariff hike:

President-elect Donald Trump recently pledged big tariffs on the United States' three largest trading partners - Canada, Mexico, and China.

 

As per reports, Trump, who takes office on January 20, said he would impose a 25 per cent tariff on imports from Canada and Mexico and an additional 10 per cent tariff, above any additional tariffs on imports from China.  Analysts reckon Trump’s government, particularly those related to trade and emerging market currencies, could introduce new challenges for markets.