By Ira Dugal
This was originally published in the India File newsletter, which is issued every Tuesday. Sign up here to get latest news from India and how it matters to the world.
Seasons greetings from Mumbai!
‘Tis the season for predictions on what 2025 may hold for the world and for India. This week on the India File, we focus on what investors expect from Indian markets going into 2025.
A big oil deal grabs headlines: Reliance and Russia have signed a multiyear supply agreement. Scroll down for more on that.
Have any feedback on the India File as we head into 2025? Write to me at Ira.dugal@thomsonreuters.com
This week in asia
** South Korea’s acting president moves to reassure allies, calm markets after Yoon impeachment
** China eyes negotiations as Trump threatens new tariffs
** BOJ’s rate hike plans clouded by small firms’ wage woes
** Australia plans new rules forcing Big Tech to continue paying news outlets
More moderate returns ahead?
For investors in India, 2024 began with exuberance over world-beating economic growth, renewed political stability and rising global influence. But it is ending with worries over slowing consumer demand, flagging corporate earnings and a record influx of new shares in the market.
A Reuters poll shows that the benchmark Sensex index is expected to rise a modest 9% from current levels by end-2025, below the 13% gains year-to-date and less than half the 20% rise in 2023.
Forecasts in the Reuters poll ranged widely from 98,500, a 22% rise, to 64,600, a 19% drop, reflecting the uncertainties that await India, and indeed the global economy, in 2025.
A broader global survey of 15 global markets, however, shows that returns in India are expected to remain among the top five next year.
This glass-half-full, half-empty set of scenarios highlights both the drag on India’s share markets from flagging growth and external challenges, and the resilience of a market that can still attract investors with its relative stability and returns.
The pace of earnings growth is a particular concern going into 2025, however, after a sharp slowdown in the July-September quarter.
Goldman Sachs, which downgraded India in October to market-weight from overweight, expects below-consensus earnings growth of about 13% next year, premised on its expectation of 6.3% GDP growth in the next calendar year versus 6.7% this year.
“History suggests muted near-term returns when starting valuations are high and earnings are seeing downgrades,” Goldman said in a note.
Jefferies holds a similarly cautious view.
The 21% compound annual growth rate in corporate earnings per share in the four financial years to March 2024 has given way to slower 10% growth this year and an expected 13% increase next year, analysts at the brokerage said in a note.
They expect a 10% market return in 2025.
But a more bullish Morgan Stanley sees things differently.
India is in the midst of a “virtuous cycle”, underpinned by the government’s commitment to macroeconomic stability, households’ higher allocations to the equity markets and India’s rising weight in global indexes, the bank’s analysts said.
They expect earnings to grow 18-20% annually over the next 4-5 years.
Another focus for many analysts is the pace of share sales, both by companies looking to go public and by large shareholders unloading stocks in listed companies.
In the current financial year, India’s main markets will take in an estimated 7.5 trillion rupees ($88.4 billion) in new shares from IPOs, institutional placements and block deals from large shareholders – nearly double the previous year’s 4 trillion rupees, according to Axis Bank.
That additional supply is expected to exceed demand of roughly 6 trillion rupees this financial year, according to Axis’ estimates, as foreign investors have turned net sellers – albeit by a small amount. They were net buyers of $25 billion in the previous financial year.
Both Axis and Jefferies believe the supply of equity in 2025 will remain elevated, pressuring markets.
Some of the slack left by foreigners is being taken up by domestic investors, who have bought heavily into equity mutual funds and fuelled a record 45 consecutive months of fund inflows.
Foreign investors may also be lured back by India’s rising weight in global indexes, according to Morgan Stanley, while Jefferies notes that foreign holdings of Indian shares are at a decade low and their positioning is “light”. That, it said, could set the stage for improved flows after the slump in 2024.
What factors will determine returns for investors in India next year? Write to me with your views at ira.dugal@thomsonreuters.com.
The India File takes a year-end break over the next two weeks and will return on Jan. 7. Happy holidays!
Quote of the week
“India should be active in taxing the rich.”
French economist and author Thomas Piketty was speaking at a round table in New Delhi on Friday.
India could raise annual revenue worth 2.73% of its gross domestic product by imposing a 2% wealth tax on people with assets of more than 100 million rupees ($1.18 million), and a 33% inheritance tax on property worth at least the same amount, Piketty said.
India’s chief economic adviser V. Anantha Nageswaran opposed Piketty’s idea, saying that higher taxes could encourage fund outflows as wealthy investors move more of their money overseas.
Market matters
Russia’s state oil firm Rosneft has agreed to supply nearly 500,000 barrels per day (bpd) of crude oil to Indian private refiner Reliance in the biggest-ever energy deal between the two countries, sources familiar with the deal told Reuters.
The 10-year agreement, worth roughly $13 billion a year, looks like a win-win for the sanctions-hit Kremlin and New Delhi’s push to cut its energy bill, BreakingViews columnists wrote.
($1 = 84.8250 Indian rupees)
(By Ira Dugal; Editing by Edmund Klamann)
