The Month That Was: January 2025

In January, the Nifty50 Index declined by 0.6%. This was the fourth consecutive monthly loss for Nifty50. Mid-cap and small-cap indices underperformed, falling by 6% and 10%, respectively. All sectors showed decline, with real estate (-13%), consumer durables (-10%), and healthcare (-8%) being the worst performers. Market sentiment was worsened by concerns over US trade policies, geopolitical tensions, a depreciating INR, and rising crude oil prices. Global markets were mixed, with Germany (+9%), France (+8%), and the UK (+6%) gaining, while the Philippines (-10%), Thailand (-6%), and Malaysia (-5%) saw notable declines.

Key developments during the month included the NSO estimating FY2025 real GDP growth for India at 6.4% vs  8.2% in FY2024. The RBI introduced several liquidity-enhancing measures, while the US Fed kept interest rates unchanged. China’s DeepSeek released a cost-effective AI model, raising concerns about competition in the technology sector. The 3QFY25 earnings season was broadly in line with modest expectations. During the month FII outflow in Indian equities continued with net selling of $8.6 billion while DIIs bought $10 billion.

On the economic front, CPI inflation for December fell to 5.2% from 5.5% in November, while WPI inflation rose to 2.4% from 1.9%. Industrial growth, as measured by IIP, improved to 5.2% YoY in November from 3.5% in October.

Market Outlook
The reduction in income tax in the recent Union Budget has focused on easing the burden on a large number of taxpayers thus focusing on revival of consumption. The Budget has demonstrated a good balancing act between promoting capital expenditure and boosting consumption. Also, the fiscal consolidation path has been maintained which is a structural positive for the Indian economy. 

During last month, the equity market especially in mid/small cap segment witnessed sharp fall due to FII selling. Despite short-term volatility, India’s structural growth drivers i.e. robust domestic consumption, revival in capital expenditure, and a resilient banking sector continue to support long-term equity market prospects. Investors are advised to focus on quality stocks in sectors such as healthcare, banking, consumer discretionary and industrials sectors using corrections to accumulate fundamentally strong businesses.

Happy Investing!