The Indian stock market excelled in FY24. But for FY25, replicating the same level of performance may not be realistic. The goal is to maintain the positive momentum of the Indian economy seen over the last three years. India is becoming a prominent source of global growth, driven by industrialization. The expectation is that this trend will foster in the coming years, led by friendly investment policies, igniting foreign and domestic capex.
In the early stages of FY25, the market will contend with challenges including volatility stemming from national elections, heightened geopolitical tensions in the Middle East, persistent inflation above normal levels for a year, decelerating earnings growth, and elevated valuations. These factors are expected to influence short-term performance.
Despite challenges, the Indian economy is positioned well. Forecasted growth of 7% in FY25 could see upgrades, driven by strong private and government capital expenditure, foreign investments, and rural economic improvements spurred by La Nina. This sets the stage for decent business and earnings growth, albeit lower than the 3-year CAGR. Among various global and domestic headwinds, the most pressing concern is high valuation.
Midcaps are starting at a 45% premium to large caps, while large caps are trading 10% premium to the long-term average. The broad earnings growth is forecast to reduce from 25% in FY24 to 15% in FY25. Hence, the premium valuations of large caps and mid-caps are estimated to normalize going ahead. However, India is projected to maintain a premium over other emerging markets due to its superior economy, political stability, and earnings growth estimates. In the short to medium term, large caps are considered the preferred investment option due to their ability to navigate global and business volatility, along with their fair valuation. Further, we have updated, our Nifty50 target for 31st March 2025, sector outlook and the best stock pick and sell option for FY25.
Performance of Nifty indexes for last three years
| Indexes | FY22 | FY23 | FY24 | 3yrs CAGR |
| Nifty 50 | 19% | -1% | 29% | 15% |
| NiftyMidcap 150 | 24% | 2% | 56% | 25% |
| NiftySmallcap 250 | 36% | -7% | 63% | 27% |
| Nifty 500 | 21% | -2% | 39% | 18% |
Outlook and target for Nifty 50 in FY25
Our target for Nifty50 stands at 23,600 for December 2024, derived from a one-year forward P/E ratio of 19x. We maintain an earnings growth forecast of 15% for FY25 and 14% for FY26. And expected at 14% in FY26. India is expected to trade slightly above the long-term average P/E of 18x. Based on the Nifty50 FY25 and FY26 EPS forecast of Rs 1,152 and Rs 1,325, respectively, we forecast a Nifty50 target of 25,150 for 31st of March 2025, which foresees a positive return of 12.6% from the closing of 22,326.9 of 31st March 2024. We advise focusing on large caps as mid and small caps are relatively expensive.
Amidst a global stock market characterized by high-priced equities, currency volatility, and elevated cost of funds, there’s a potential for portfolio restructuring in CY24, offering opportunities across other asset classes such as gold, debt, and commodities. Hence, the overall outlook for equities is moderately positive, with an edge on large caps. Below, we offer sector-wise ratings and our top picks and sell recommendations for FY25.
Sector: Auto Rating: Neutral
We expect PV sector growth to stabilize for the year, driven by last year’s high base, diminishing UV demand, and capacity constraints. The 2W segment is expected to maintain steady demand due to export growth and rural positivity. Uncertainty over the FAME 2 subsidy extension and market stabilization may lead to short-term consolidation in the EV sector. M&HCV volume growth delay is expected to continue into H1FY25 due to election factors. In addition, immediate recovery in tractor volume is not anticipated due to the peak volume base & low reservoir levels. We factor the volume growth for PV and CV to be low single digit and double digit for 2W in FY25. Hence, we maintain neutral rating for the sector.
| Top Buy: TVS Motors Ltd. UNO Minda Ltd. | Top Sell: Escort Kubota Ltd. Tube Investments of India Ltd. |
Sector: Aviation Rating: Positive
Indian aviation saw robust growth, with passengers increasing by 11% CAGR from FY12 to FY20. Post-pandemic, FY21-FY24 saw domestic and international passenger growth surge by 38% and 45%, respectively. Currently, India has 148 airports, aiming for 200 in the next 5 years. The UDAN scheme expanded air connectivity to tier-two and tier-three cities. Domestic passenger growth is forecasted at 11-13% CAGR for 3-5 years. Domestic players have an order book of 1,700 aircraft, doubling the current fleet size. Soft ATF prices benefited them, and recent oil spikes are expected to ease, aided by newer, more fuel-efficient aircraft with lower operational costs, which provides a cushion against volatile fuel prices. Indigo is our top pick given its 60% market share, strong network, cost efficient fleet, and healthy cash position.
| Top Buy: Interglobe Aviation Ltd. | Top Sell: N.A. |
Sector: Bank Rating: Positive
The banking sector grapples with a liquidity crunch, prompting banks to attract fixed deposits at higher rates. Private capex lags expectations while credit growth remains steady. The shift in the RBI’s interest rate policy towards an accommodative stance, alongside the projected sustained growth in private capital expenditure, is anticipated to fuel the growth prospects for banks. Anticipated rate cuts could alleviate margin pressures from the liability side. Private banks are poised to lead the rally in valuation compared to PSUs. The Nifty PSU Bank Index’s 1-year forward P/Bk stands at 1.27x, marking a 30% increase from its long-term average of 0.98x. Meanwhile, the Nifty Bank’s 1-year forward P/Bk sits at 2.04x, closely aligning with its long-term average of 2x.
| Top Buy: HDFC Bank CreditAccess Grameen Ltd. | Top Sell SBI Cards & Payments Services Ltd. |
Sector: Capital Goods Rating: Positive
The continuation of industrial and infrastructure capex and increased investments in textiles, construction materials, metal products, and machinery will be key drivers for order inflows in this sector. Currently, at 2.19X TTM (Trailing Twelve Month) revenues, the order backlog of the S&P BSE capital goods index provides top-line visibility. Although margin contractions woes emerge from certain raw materials, the earnings growth forecast in FY25 is expected to be at 26.05%, with H2FY25 earnings forecast to be higher than H1FY25. Currently, the sector is trading at a 15% premium to the 1-year average, which understates the growth prospects of the sector and hence could attract more premium to its current valuations.
| Top Buy: Va Tech Ltd. Power Mech Ltd. | Top Sell BHEL CG Power |
Sector: Cement Rating: Neutral
Cement industry volumes are expected to grow by high single digits in FY25E owing to government emphasis on infra and housing, coupled with a positive real estate outlook. Q4FY24 volume growth is forecasted at ~5–6% due to a high base, with FY24 expected to end with ~9% YoY growth. However, cement prices have been declining since November 2023. We expect the impact of weak cement prices to be offset by lower costs and operating leverage for Q4FY24. Going forward, margin expansion will be limited as fuel prices have stabilised. Currently, cement stocks are trading above the long-term average, and we maintain a neutral stance on the sector in the near to medium term.
| Top Buy: Dalmia Bharat Ltd. The Ramco Cements Ltd. | Top Sell Ultra Tech Cement Ltd. |
Sector: Chemicals Rating: Neutral
Recent earnings of global specialty chemical companies were mixed, with some reporting volume increases while others saw declines. Agrochemical firms struggle with high inventories, lacking signs of immediate improvement. Despite optimism for a CY2024 recovery among global chemical companies, timing remains uncertain. We maintain a selective approach, favouring specialty chemicals. Domestic firms continue capital expenditure plans, supported by a positive long-term outlook. Recent commentary suggests gradual destocking alleviation, with normalized growth expected for FY25. We maintain a positive stance on specialty chemicals and a neutral on agrochemicals. For FY25, we anticipate specialty chemicals (based on 16 of the top speciality chemicals companies) total revenue, EBITDA & PAT to grow by 17%, 29%, & 34.3% YoY, respectively, with a 180bps YoY margin improvement.
| Top Buy Aarti Industries Vinati Organics Ltd. | Top Sell Tata Chemicals Ltd. |
Sector: Consumer durables Rating: Positive
| Top Buy: Havells India Ltd., Crompton Greaves Consumer Electrical Ltd. | Top Sell: N.A |
The consumer electrical and durables sector is poised for robust growth (based on estimates of the 17 largest companies in the sector); revenue is anticipated to rise by 19% YoY, with EBITDA and PAT increasing by 31% & 37% YoY, respectively, along with an 80-100bps margin boost. Surging sales of air coolers, air conditioners, and fans are anticipated amid rising temperatures and frequent heatwaves, peaking in Q1FY25 due to channel restocking. Stabilizer and inverter demand surges due to power fluctuations, while strong construction activity drives growth in cables, wires, and switch gears. Monitoring rising copper prices. Despite optimism, the BSE consumer durables index’s high P/E of 55x, compared to 10yr & 5yr averages of 36x & 43x, suggests a selective approach.
| Top Buy Havells India Ltd. Crompton Greaves Consumer Electrical Ltd. | Top Sell N.A. |
Sector: Defence Rating: Positive
The government’s focus on self-reliance has bolstered the defence sector’s long-term outlook. Import restrictions on defence products to reduce the risk of dependency and bring down the import bill are favouring domestic manufacturers. Further, the current impasse with China has accelerated indigenous manufacturing. The government plans to invest USD 130 billion during FY24-FY30, indicating ~7% CAGR for armed forces modernization. Our positive outlook hinges on robust order books, strong execution, investments in R&D, and technological advancements. FY25 is poised for strong growth, led by a robust order book, around 3.2x of FY25E projected sales (based on the largest 12 domestic companies). We anticipate revenue, EBITDA, & PAT to grow by 19%, 20%, & 17% YoY, respectively.
| Top Buy BEL Cochin Shipyard Ltd. | Top Sell Astra Microwave Ltd. |
Sector: FMCG Rating: Positive
In recent quarters, the FMCG industry has struggled to boost rural demand due to competition from local players. We expect demand to gradually rebound as competition pressure eases with stabilized input prices. A favourable progression in the monsoon would further enhance this scenario. The ongoing heat wave may affect food inflation in the short term. We anticipate mid-single-digit revenue growth and ~100 bps (YoY) improvement in margin for FY24. FY25 is forecast to see low double-digit growth in both revenue and EBITDA. A minimal margin improvement is expected due to stagnant prices and rising crude prices. The FMCG sector is currently trading moderately above the long-term average, suggesting a buy-on-dip strategy.
| Top Buy Marico Ltd. Avenue Supermarket Ltd. HUL | Top Sell Colgate Palmolive (India) Ltd. |
Sector: Healthcare Rating: Neutral
India’s healthcare sector exhibits strong growth potential, driven by healthtech innovations and government initiatives. Despite elevated fixed costs and inflationary pressures, technology integration enhances efficiency and profitability. Post-pandemic, the willingness to pay more for healthcare persists, despite high medical inflation (~11%). Rising lifestyle diseases sustain demand for healthcare products, while expanding insurance coverage improves accessibility. The Supreme Court’s decision to set fixed rates for medical procedures poses concerns about practicality and service quality, but there is optimism for a temporary suspension to mitigate risks. Currently, the sector trades at a forward P/E ratio of 31x, 26% higher than its 5-year average. Given these inflated valuations, we maintain a neutral rating for the healthcare sector.
| Top Buy Narayana Hrudayalaya Ltd. | Top Sell HCG Ltd. |
Sector: Infra Rating: Positive
The GoI’s increased capital expenditure for FY25 to Rs11.1 trillion, with a projection of 7% GDP growth for FY25, will paint a rosy picture for infra sector. The average capacity utilisation level was 74.7% in Q3 FY24, which depicts a revival in private capital expenditure for the coming years. The expectation of ease in key interest rates by the RBI will provide impetus for spending, support profitability margins, and strengthen the balance sheet of infrastructural and capital goods players. On the valuation front, the BSE infra index is trading at a P/E of 15.6x, which is at a premium to its long-term average, and we expect the premium valuation to continue due to a healthy earnings growth forecast for FY25 and FY26 of 26% and 21%, respectively.
| Top Buy NarayanaHG Infra Ltd. KNR Construction Ltd. Hrudayalaya Ltd. | Top Sell N.A |
Sector: IT Rating: Neutral
Following a year of muted growth, the Indian IT sector is poised for a revival in FY25E, driven by signs of renewed spending by the clients. Margins are anticipated to stabilise and improve mildly by 90 basis points, driven by extensive cost optimization measures being implemented by many companies. Encouraging signs, including new deal wins and growing demand from sectors such as AI & Gen AI, cloud services, and cybersecurity, are expected to bolster revenue visibility. However, sticky inflation in the U.S. may delay rate tightening that could impact discretionary spending. Hence, IT may endeavour volatility in the short term; however, it doesn’t foresee substantial weakening, offering an accumulation strategy.
| Top Buy TCS Ltd. Cyient Ltd. | Top Sell N.A. |
Sector: Pharma Rating: Positive
Top large-cap companies are poised to sustain double-digit growth in FY25E, but at a slower pace compared to the previous year. The ease of price erosion in the U.S. and new product launches drive revenue during this year. However, the EBITDA margin is likely to see a mild expansion of 60 basis points. Looking forward, earnings are poised to improve further, driven by factors including ANDA approvals, new product launches, and the stabilization of raw material prices. Presently, pharmaceutical stocks are trading at a premium relative to their long-term averages, suggesting a selective approach to investment, particularly focusing on opportunities with promising long- and medium-term prospects.
| Top Buy Biocon Ltd. | Top Sell Suven Pharmaceuticals Ltd. |
Sector: Power Rating: Neutral
India’s FY25 GDP is expected to grow at 7%, and peak power demand is expected to exceed 260GW due to hot summers. The thermal capacity utilization is hence forecast to be at 69%, while the anticipation of normal monsoons will aid Hydel power project operations. Favourable government policies provide the necessary tailwinds for over 25GW of renewable capacity addition. Developers can benefit from low solar module prices. However, execution risks persist in renewables due to PPA (Power purchase agreements) delays and non-compliance of RPOs (Renewable purchase obligations) by discoms. Currently, S&P BSE power index trades at 3.27 P/Bk (34% premium to its 1-year average). Hence, a neutral outlook is maintained due to the high valuations and execution risks in the renewable segment.
| Top Buy: N.A. | Top Sell: Torrent Power Ltd. |
Sector: Realty & Building materials Rating: Neutral
Following the exceptional 30% sales growth in FY24, the Indian realty is poised for sustained growth in FY25, albeit at a normalized pace. The ongoing industry upcycle, supported by robust demand, increased affordability, and a desire for homeownership, underpins this outlook. Nifty Realty FY25 earnings are projected to stabilize at ~30%, reflecting the gradual realization of robust pre-sales in financials. Despite the steady growth in bookings and prices, the expensive valuations are casting a shadow of caution among investors, with most realty stocks trading above a 15% premium to their forward NAV and exhibiting expensive P/Bk ratios. However, selective stocks with strong fundamentals may still offer potential returns in FY25, though any broader market negativity could trigger significant corrections in the sector.
FY25 will witness robust growth for the Indian piping sector, led by a strong summer, continued plumbing volume momentum from the real estate and construction sectors, and the Nal Se Jal scheme. Given strong demand and raw material prices at Rs.70/kg, will trigger channel restocking ahead of the of the agri-season. Revenue, EBITDA & PAT expected to grow by 16%, 25%, & 29%, respectively (estimates based on the top 5 players in the sector), with a 110bps YoY EBITDA margin expansion due to eased input prices.
| Top Buy: Supreme Industries Prince Pipes Pipes and Fittings Ltd. | Top Sell: Brigade Enterprises Ltd. Oberoi Realty Ltd. |
