India’s Stock Market Outlook: Long-Term Growth Amid Short-Term Volatility
The outlook for India’s stock market remains positive in the long run, despite increased short-term volatility. Factors such as geopolitical tensions, fluctuating crude oil prices, and adjustments by Foreign Institutional Investors (FIIs) due to China’s economic stimulus have contributed to this volatility. The ongoing Iran-Israel conflict poses a global risk, but crude prices are unlikely to stay above USD 88-90 due to weak international demand.
Strong domestic investments continue to support the market. Although high-frequency data suggests a slow second quarter, the upcoming festive and wedding seasons, along with a favorable monsoon and better Rabi crop prospects, are expected to boost demand in the second half of FY25. Increased government spending will also aid growth. Despite short-term fluctuations, India’s long-term growth story remains intact, with sectors like discretionary consumption, two-wheelers, IT, cement, and large banks favored for investment.
The second quarter is likely to show mixed results due to heavy rainfall in August and September, which disrupted sectors like agrochemicals and commercial vehicle sales. Infrastructure projects and cement company volumes may face delays due to upcoming elections, erratic weather, and slow budget allocations. However, sectors such as hospitals, alcoholic beverages, two-wheelers, jewelry, and consumer durables are expected to perform well.
Global sectors like metals and oil and gas may continue to lag. Subdued margin growth is expected in areas like agrochemicals, cement, retail, and metals due to pricing pressures. Conversely, sectors such as auto, paints, alcoholic beverages, and select consumer goods may see margin improvements through premium products and strategic price hikes. Banks may experience softer margins due to seasonal factors and tight liquidity, while non-banking financial companies (NBFCs) could see higher credit costs impacting their margins.
Despite challenges in the first half of FY25, the second half is anticipated to be stronger with the normalization of economic activities. The Nifty50 is expected to achieve 11% earnings growth in FY25 and 14% in FY26. Excessive rainfall in August and September affected Q2 results, particularly for the agrochemical sector. However, improved soil moisture levels and water reservoir conditions indicate a favorable outlook for the upcoming Rabi season.
Revenue growth for Q2 FY25 is projected at 7% year-on-year, driven by a 12% rise in two-wheeler production and 1% growth in passenger vehicles. Commercial vehicles may see a 13% decline due to slower infrastructure development. Companies with higher exposure to two-wheelers, such as TVS and Endurance, are likely to show better results, while those focused on commercial vehicles, like Ashok Leyland, may underperform.
For the banking sector, net interest income (NII) is expected to grow by around 10.6% year-on-year in Q2 FY25, with pre-provision operating profit (PPoP) increasing by 17%. NBFCs are expected to show growth despite weaker margins, with credit costs remaining high. In the microfinance sector, asset quality issues continue, with elevated slippages and declining collection efficiency.
Doubts Revealed
Stock Market -: A stock market is a place where people buy and sell shares of companies. It’s like a big marketplace for businesses.
Volatility -: Volatility means how much and how quickly the prices of stocks can change. If prices go up and down a lot, it’s called high volatility.
Geopolitical tensions -: Geopolitical tensions are conflicts or disagreements between countries that can affect the world economy, like the Iran-Israel conflict.
Crude oil prices -: Crude oil prices refer to the cost of unrefined oil, which is used to make petrol and other products. Changes in these prices can affect many things, like transportation costs.
FIIs -: FIIs stands for Foreign Institutional Investors. These are people or companies from other countries who invest money in India’s stock market.
Iran-Israel conflict -: The Iran-Israel conflict is a long-standing disagreement between the countries of Iran and Israel, which can affect global peace and economies.
Festive seasons -: Festive seasons in India include times like Diwali and Christmas when people celebrate and often buy more goods, boosting the economy.
FY25 -: FY25 stands for the financial year 2025, which is a period used for accounting and budgeting, starting from April 2024 to March 2025 in India.
Discretionary consumption -: Discretionary consumption refers to buying non-essential goods, like luxury items or entertainment, which people buy when they have extra money.
Two-wheelers -: Two-wheelers are vehicles like motorcycles and scooters, which are very popular in India for transportation.
IT sector -: The IT sector includes companies that work with technology, like software development and computer services.
Cement sector -: The cement sector involves companies that produce cement, a key material used in building and construction.
Large banks -: Large banks are big financial institutions that offer services like saving money, giving loans, and managing investments.
Heavy rainfall -: Heavy rainfall refers to a lot of rain in a short period, which can cause problems like floods and affect agriculture and infrastructure.
Q2 results -: Q2 results are the financial performance reports of companies for the second quarter of the financial year, which is from July to September in India.
Infrastructure development -: Infrastructure development means building and improving facilities like roads, bridges, and buildings, which are important for a country’s growth.
