“You get recessions, you had stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in markets.” – Peter Lynch (American investor, mutual fund manager, author and philanthropist)
January 2025 Indices Summary
The year 2025 has begun with a sharp market correction. The first nine months of 2024 were highly rewarding, with mid and small caps significantly outperforming large caps. However, after reaching record highs on September 26, 2024 (Nifty 50: 26,277), the markets have since declined approximately 13%.
- Large Caps: Down 15% from peak
- Mid Caps: Down 21% from peak
- Small Caps: Down 24% from peak
While valuations have improved post-correction in large and small caps, mid-caps remain at a premium compared to historical averages.
Key Factors Behind the Market Sell-off
- Slowdown in earnings growth
- Weak urban demand
- Moderation in bank credit growth
- Global uncertainties
- Four consecutive months of FII outflows (₹87,374 crore in January 2025)
- Strong DII inflows (₹86,591 crore in January 2025, marking the 18th consecutive month of net inflows)
Global equity markets displayed a mixed trend. The US, Korea, and most European markets ended in positive territory, whereas China and Japan experienced declines.
Reasons for Sharp Market Selling
1. Trump’s Tariff War: Shortly after his swearing-in, President Trump imposed tariffs on countries with high duties on US imports, triggering a global trade war. India, known for its steep import duties on US goods, will face additional tariffs from April 1, 2025. While PM Modi and Trump recently met to negotiate a resolution, India may need to lower duties or make strategic trade concessions to avoid further economic strain.
2. Elevated Valuations: Despite recent corrections, Indian markets remain overvalued compared to global peers. Heavy domestic inflows have sustained these valuations, but FIIs have taken advantage by exiting positions. Foreign Portfolio Investors (FPIs) have withdrawn approximately $17.89 billion since October 2024.
3. Fed Rate Pause & Inflation Fears: The US Federal Reserve cut rates thrice in 2024 but has since paused, waiting to assess the inflationary impact of the tariff war before making further decisions. Higher US interest rates increase borrowing costs, making Indian markets less attractive to foreign investors.4. Slowing Corporate Earnings Growth: The recent correction coincides with sluggish earnings growth. Nifty 50 reported just 4% PAT growth in 9MFY25, compared to over 20% CAGR during FY20-24. While BFSI led earnings, weakness in consumption and commodities dragged overall performance. Forward earnings revisions remain the weakest in recent tim
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