NAVIGATING INDIAN EQUITY MARKET

WE JUST bid farewell to 2024 where the Nifty 50 closed with an impressive 15 per cent annual returns, slightly above long-term average. The mid and small-cap segments have outperformed significantly, delivering returns around 30 per cent, far exceeding their historical benchmarks. Yet, by year-end, the returns across these indices have halved from their peaks earlier in the year. The market correction, which began in late September, tempered an otherwise stellar performance, leaving investors with a mix of above-average annual returns, a sense of what could have been and apprehensions about the outlook for 2025.

- SAMIR BAHL,CEO, Investment Banking,Anand Rathi Advisors

Equity markets are often swayed in the short term by news flows, events, and investor sentiment—factors that are notoriously unpredictable. In contrast, medium- to long-term market movements hinge mainly on five key drivers: macroeconomic performance, corporate earnings growth, equity valuations, domestic liquidity inflows, and foreign portfolio investment.

Throughout 2024, both macroeconomic indicators and corporate earnings have shown signs of deterioration. The market correction reflects these trends. Valuation metrics, particularly the price-to-earnings (P/E) ratio for large-cap stocks, have remained in line with their 10-year averages. However, the mid-cap segment tells a different story. Various estimates based on both historical and forward-looking earnings suggest that mid-cap indices are overvalued in the range of 30-90 per cent. Though this overvaluation has moderated in recent months, a significant portion of mid-cap stocks seem to remain frothy. A similar, albeit less pronounced, trend is evident in the small-cap segment.

Domestic Liquidity