The Indian market has underperformed YTD compared to states like Taiwan, the US & Japan, and Germany. Key reasons are premium valuations, that failed to sustain the accelerated growth observed from CY21 to 23. Additionally, investments have shifted from large-cap to mid-cap stocks, which are not reflected in the Nifty50 index. The market has also been impacted by reduced FII inflows amid national election risks and weak rural demand caused by a subdued agricultural sector.
Country | Index | 1 yr. forward PE | CY23 Return (%) | YTD Return (%) |
Taiwan | TWSE |
19
27
31
CCMP
29
43
18
NKY
21
28
15
US - S&P 500
SPX
21
24
15
DAX
12
20
9
Nifty50
20
20
8
UKX
12
4
7
KOSPI
10
19
6
INDU
18
14
4
CAC
13
17
2
SHCOMP
11
-4
1
The risk of underperformance has diminished following the formation of a stable coalition, and FII inflows have improved this month. However, it is premature to be optimistic, as global sentiment remains mixed due to high inflation and interest rates. Moreover, the economy is expected to slow slightly in CY25, and valuations remain high.
The outlook for the domestic stock market & economy is stable. India’s broad market, the Nifty 500, has delivered an above-average return of 14.5% over the past six months, driven by strong mid and small-cap performance. In January 2024, we had a forecast of an 8.5 to 12% return on the main index, Nifty50, with a base target of 23,600. We now upgrade the target to 24,350, due to better than anticipated earnings growth and an upgrade in economic growth.
Nifty50 EPS was forecast at ₹1,243 for Dec 2025, and currently it holds tall at ₹1,250. The latest Q4FY24 result was hugely above forecast. PAT was forecast to grow by 10%, while actual growth is 17.5%. As a result, the future target for Nifty5o, basically the market, has improved due to better business performance, with a high probability of expanding in FY25. Nifty EPS grew by ~23.8% in FY24 and is forecast to achieve between 12 to 15% in FY25.
In January 2023, FY24 GDP was forecasted to grow by 6.5% by RBI, but the actual growth has exceeded expectations, reaching over 8.2%. This trend is likely to continue into FY25, as indicated by the RBI’s upgrade of FY25 GDP growth from 7% to 7.2% in the June policy. The RBI expects Q1FY25 GDP growth to be at an upside of 7.3%.
We can estimate another 4 to 7% return for Nifty50, in the next 6 months, based on our new base target of 24,350 and the best target of 25,000. Which is a decent return in the next less than 6 months, annualize is 12 to 15%. Alongside, the market has a lot to offer on a stock to sector basis by investing in upcoming areas.
In the long-term, we foresee a target of 26,500 for December 2025. The market estimates a stable earnings growth of 12 to 14% for the next 2-3yrs in anticipation of the average 7% GDP growth of India. The volatility, which increased during the year, has drastically reduced with the formation of a stable coalition. The market is now eagerly awaiting the final union budget outcomes, anticipating a prudent fiscal policy that balances growth objectives with populist measures.
The author Vinod Nair is the Head of Research, Geojit Financial Services.
Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.
