RBI rate cut, Trump, Budget: What factors will drive stock markets in 2025

Stock Market Outlook 2025: Analysts believe India stock markets may continue to witness market consolidation, at least in the first half of 2025

Stock market triggers 2025, stock market outlook for 2025: India stock markets saw a topsy turvy 2024, where a string of events caused bouts of volatility, especially in the second half of the calendar year. 

From the Lok Sabha elections of 2024 to Donald Trump’s victory in the US, from simmering tensions between Iran and Israel to foreign investors’ mammoth selling of Indian equities, the stock markets saw it all this outgoing year.

  Going ahead, analysts believe domestic equity markets may continue to witness market consolidation, at least in the first half of 2025, on the back of various domestic and global economic events.

 

  “We expect the stock markets in 2025 to grow at a steady yet measured pace, in line with corporate earnings. While it may not be a runaway rally, there are enough positives to stay optimistic about the year ahead,” said Vikram Kasat, head of advisory at PL Capital- Prabhudas Lilladher.

 

Here is a list of factors that will shape the India stock markets in 2025:

  Donald Trump inauguration, policies:

One of the key events, globally, that will dominate the market mood in January 2025 will be President-elect Donald Trump’s swearing-in or inauguration ceremony.

  While stock markets will keep a tab on the who’s who attending the event, in a bid to gauge the US’ possible diplomatic connections under Trump administration, market watchers will also have their eyes peeled for Trump’s policies.

  “The recent election of Donald Trump in the United States introduces uncertainty in policies related to trade, immigration, environmental protection, and diplomacy. Any significant shifts in US policies could have ripple effects on the Indian equity market, given the intertwined nature of global economies,” said Sujan Hajra, chief economist and executive director, Anand Rathi Group.

 

Budget 2025, Government capex:

Back home, the month of February will see the Indian government presenting its Union Budget for financial year 2025-26 (FY26).

  Analysts said a strong capex push by the government may benefit sectors like infrastructure, defence, and railways.

  “CY24 saw a muted government capital expenditure, which had a negative multiplier effect on the economy. If Budget 2025 sees a strong capex push by the government, it could result in a positive multiplier effect on the economy,” said Rakesh Vyas, co-chief investment officer and portfolio manager, Quest Investment Advisors.

  Moreover, maintaining the fiscal consolidation path in Budget 2025 should help stabilise the currency and attract more capital inflows, he added.

  Inflation and RBI’s rate cut outlook:

The third important factor, guiding the stock markets outlook in 2025, will be the Reserve Bank of India’s (RBI’s) interest rate cut decisions based on India inflation data.

  “High food prices-driven inflation is expected to stabilise with the Kharif harvest and better Rabi sowing conditions. The RBI might consider a rate cut by February 2025. If this materialises, it will ease borrowing costs, giving sectors like consumption, housing, and non-bank finance companies (NBFCs) a much-needed boost,” said Vikram Kasat of PL Capital- Prabhudas Lilladher.

 

Earnings growth:

The recent correction in Indian equities was triggered by weak corporate earnings for the July-September quarter (Q2) of the current financial year.

  “While FY25 may see low, single-digit earnings growth, corporate earnings are expected to bounce to 16 per cent CAGR over FY25-27E, which will boost investors’ confidence,” said Sneha Poddar, vice president for retail research (Wealth Management) at Motilal Oswal Financial Services.

 

FII, FPI flows:

Foreign investors have been selling Indian equities over the past few months owing to weak earnings, back home, high valuations, and expectations of China stimulus.

  Foreign institutional investors (FIIs) sold Indian equities in eight out of 12 months this calendar year with October 2024 seeing record monthly outflow of Rs 1.14 trillion. Thus far in 2024, FIIs have sold a gigantic Rs 2.91 trillion worth of Indian equities.

  Analysts said, the return of FII/FPI money, coupled with stable domestic institutional investors’ inflows will be a crucial factor to decide the market trajectory in 2025.

 

Geopolitical stability and oil prices:

The resolution of ongoing geopolitical conflicts between Ukrain-Russia, and Iran-Israel could ease global supply chain disruptions and stabilise energy prices.

  Besides, analysts believe Donald Trump’s return to the White House may stabilise oil prices around $70–$75 per barrel.

 

Valuations:

Elevated valuations in the mid- and small-cap segments, coupled with uncertainties around corporate earnings and economic growth, represent areas of concern. Positive outcomes in these metrics would support equity market performance, while underperformance could act as a drag.

 

China+1 trend:

Donald Trump’s policies may accelerate the China+1 strategy, making India a preferred destination for companies looking to diversify their manufacturing hubs.

  Higher tariffs on Chinese imports into the US, Rakesh Vyas of Quest Investment Advisors said, could open up opportunities for Indian manufacturing to expand exports, complementing domestic demand.