Indian stock market crashed on Monday, with both the benchmark indices, Sensex and Nifty 50, falling over a percent each, amid weak domestic and global market cues. The stock market had a volatile start to 2025, with stability expected to return by the second quarter (Q2CY25).
Seshadri Sen, Head Of Research And Strategist at Emkay Global Financial Services Ltd., maintains a Nifty target of 25,000, reflecting a moderate 6.5% return for the year, while projecting stronger performance from small- and mid-cap stocks (SMIDs).
“The markets should remain weak during 1QCY25, but we expect stability from 2Q, with earnings outlook improving and the Foreign Portfolio Investor (FPI) selling abating by then. Consumption should bounce back from 2HCY25, and we adjust our sector positioning accordingly. Our Nifty target remains unchanged at 25,000, and we expect SMIDs to outperform,” Sen said in a report.
The Emkay Global analyst outlines three pivotal themes that are likely to drive Indian stock market trends in 2025:
Rebound in Consumption by H2CY25: After a sharp slowdown, consumption is expected to bounce back in the latter half of the year. This recovery will be driven by factors such as an IT-led revival in job markets, easing pressure from unsecured lending as asset quality improves, and increased state government revenue expenditure (revex) supported by cash transfers.
Shift in Capex Growth: While supernormal growth in capital expenditure has moderated, it is now expected to align with GDP growth. The central government retains some room for further capital spending, but state governments are likely to focus on welfare initiatives. Meanwhile, corporate capex is expected to show only a modest increase, with real estate emerging as a bright spot in the investment landscape, Sen said.
FPI Trends: FPI selling is expected to abate by Q2CY25 as the US dollar rally cools and geopolitical uncertainties stabilize. While a full-scale FPI buying spree is unlikely, domestic equity inflows remain a structural strength.
“India’s earnings downgrade cycle should be done by then, and the froth in valuations has also subsided. We don't see aggressive FPI buying returning, though. We remain structurally bullish on domestic flows into Indian equities. Q1CY25, however, could see extreme volatility and spells of intense selling until the dust settles around the geopolitical uncertainty,” Sen said.
Emkay sees another year of moderate (6.5%) return in the Nifty, with its conservative target at 25,000, at a moderate valuation of 21.1x trailing P/E, which is 5% discount to the LTA. The brokerage firm expects SMIDs should deliver stronger returns as they should continue to outperform on fundamentals.
“We are at the last leg of the earnings downgrade cycle, and we see little more than a 2-3% risk to FY26 Consensus Nifty EPS of ₹1,251, especially if consumption bounces back. The broader markets, however, will stay volatile in 1QCY25, as uncertainties around earnings and geopolitics persist,” Sen said.
Emkay has made significant changes to its sectoral positioning and model portfolio. The firm has upgraded Consumer Discretionary to ‘Overweight’ (OW), citing a turnaround in consumption, while downgrading Technology to ‘Neutral’ due to valuation concerns. Healthcare and Real Estate are also ‘Overweight’ sectors, while Financials and Staples remain ‘Underweight’ (UW).
The large-cap stock picks are Lupin, Zomato, and Tata Motors, while the mid-cap stock picks include IndusInd Bank, Escorts, and One97 Communications (Paytm). In small-caps, the brokerage firm recommends StoveKraft, Metropolis Healthcare, and Quess Corp, reflecting strong growth potential and diversification opportunities.
The report also details changes to its model portfolio, with additions such as TVS Motor Company, Page Industries, Lupin and One97 Communications, while trimming stakes in Bharti Airtel, Reliance Industries, Infosys, Godrej Consumer Products, National Aluminium Company.
Emkay has increased weight on BPCL, Larsen and Toubro, Tata Consultancy Services (TCS) and Shriram Finance, while the brokerage exits stocks like Hero MotoCorp, Ambuja Cements, HCL Technologies, Axis Bank, HDFC Life Insurance.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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