Key Insights and Takeaways from Q3 FY 2024-25: Navigating Market Highs, Lows, volatility and Lessons for the Future
Recap of performance during Q3 (Oct to Dec’24)
The Indian stock market experienced a strong uptrend through September 2024, hitting new highs with robust momentum. However, a sharp downtrend and heightened volatility began in October 2024, continuing into January 2025— reminiscent of the post-COVID crash in March 2020. While prior corrections between 2020 and 2024 averaged 5% with swift recoveries, the Oct-Dec 2024 quarter saw Nifty and Sensex decline by 10%, with midcaps, small caps, and individual stocks correcting by 15%-30% or more. This period highlights the contrasting nature of momentum and value investing, where momentum can drive unsustainable peaks, leading to corrections that favour value Investing strategies.
Between October and December 2024, Nifty corrected 10% from its all-time high of 26,277 on September 27, with monthly declines of 7% in October, 1% in November, and 2% in December. By year-end, Nifty closed at 23,645 and Sensex at 78,139. January 2025 brought further volatility, with lows of 23,047 for Nifty and 76,252 for Sensex, approaching the November 2024 support levels. If these levels fail, the June 4, 2024, election-result lows (Nifty at 21,281 and Sensex at 70,234) could serve as strong support. These corrections and volatility are attributed to several key factors discussed below.
Key factors driving the Indian market’s recent correction include high valuations and heavy FII selling, amounting to Rs 1.77 lakh crores ($21 billion) from October to December 2024, while DIIs countered with Rs 1.86 lakh crores of buying. In January 2025, FII selling of Rs 47,000 crores continues, offset by Rs 49,000 crores in DII purchases. The FII sell-off, driven by high valuations, a strong US economy, a rising dollar, and US election results, mirrors the Nov 2021–Jun 2022 period, where Rs 3.6 lakh crores were sold over eight months, causing a 12% correction. The lofty valuations concern of valuations were highlighted in previous monthly outlooks predictions and advised to rebalance near the Nifty levels of 25,000s. Additionally, SEBI and experts had flagged concerns over frothy valuations, particularly in midcaps and small caps, aligning with our predictions. Other contributors include lower-than-expected GDP growth (5.4%), a widening fiscal deficit (4.9%), inflation, unemployment, weak corporate earnings, and geopolitical events.
The Indian market has underperformed almost all the major global markets on monthly and yearly basis. US markets has outperformed all other markets, on an yearly basis it has delivered around 30% returns and last 1 month basis 3% return whereas Indian market has delivered 8% return yearly and -5% on monthly basis. The start of the year has been tough for the Indian market; however there are many domestic and global factors which will impact the market performance and need to be closely monitored.
Sectoral performance in the same period
Mean reversion is an investment theory that suggests prices will eventually return to their long-term average. Investors use mean reversion strategies to profit from asset prices that are far from their average. Alternatively, the Theory of Reflexivity also explains same thing that investors form their decisions based on their perceptions rather than reality and this causes disequilibrium in share pricing, which creates a price bubble and eventually leads to bubble followed by correction to restore equilibrium. The same was vindicated in 2024 when price rallied nonstop followed by corrections in last 3 months.
The returns and performance varied across sectors with high volatility. Nifty corrected around 10% from high, whereas sectors which corrected the most are energy 25%, metals 23%, media 22%, Realty 19%, Auto 18%, Infra 17%, FMCG 14%, PSU 13%, and Banks 10%. Major Sectors which outperformed nifty are pharma -6% and IT 5% (the only sector with positive return). Midcap fell 14% and small cap fell 13% compared to Nifty during this period. Individual stocks in these sectors may offer opportunities based on corrections and fundamentals. There is possibility that sectors may see bounce back if market sees uptrend. Defensives like FMCG, Pharma and IT may continue to outperform if correction continues. Hence, investment can be made in corrected sectors and stocks based on opportunities after analysis for better returns from long term perspective.
Indian Economy Highlights
India’s GDP (gross domestic product) growth for the July-September’24 quarter dropped to a surprising 5.4 per cent, the lowest level since Q3FY23. This figure represents a sharp fall from 8.1 per cent in the same period last year and 6.7 per cent in the April-June quarter (Q1FY25). Economists had projected moderation to 6.5 per cent, but the economy underperformed expectations, plunging to a near two-year low. The unexpected slowdown is likely to increase pressure on the central bank, which has kept the benchmark repo rate steady amidst inflationary concerns.
Economists have highlighted several factors influencing the disappointing numbers. Inflationary pressures played a significant role, with retail food inflation surging to 10.87 per cent in October, which reduced consumer spending capacity. Headline inflation also breached RBI’s 2-6 per cent comfort range, rising to 6.2 per cent. Corporate performance remained subdued, as leading firms posted their weakest quarterly results in over four years, affecting investment sentiments. Private consumption, accounting for 60 per cent of GDP, was sluggish due to high borrowing costs and stagnant real wage growth.
While urban demand has decreased, rural demand remains strong, offering a positive sign for future growth. There are calls for a rate cut to boost demand and growth. Experts suggest persisting with reforms in light of global uncertainty and the upcoming budget may provide guidance.
The Gross direct tax collection in 2024-25 as of December 17 saw a 20.32% year-on-year jump to Rs 19.21 lakh crore, but net collection during this period saw a 16.45% increase to Rs 15.82 lakh crore due to higher refunds of Rs 3.39 lakh crore. According to the latest GST data, cumulative revenues in eight months of FY25 increased by 9.3% on an annualised basis to Rs 14,56,711 crores. The fiscal deficit for 2024-25 (FY25) at 4.9% may remain within the target, despite a lower-than-budgeted nominal gross domestic product (GDP). The capex target of Rs 11.1 trillion for FY25 is likely to be missed by a margin of at least Rs 1–1.5 trillion, according to experts.
The Budget had assumed nominal GDP growth of 10.5 per cent for FY25. According to NSO’s latest projection, nominal GDP or GDP at current prices is estimated to reach a level of Rs 324.11 trillion in FY25, compared to Rs 295.36 trillion in 2023-24.
Global Economy Highlights
Global economy grew at 3.1% pace in 2024, slightly lower than 2023, and below the pre-pandemic norm of 3.6% from 2000 to 2019. In 2025, growth is expected to accelerate to 3.2% before post-election policies in the US dampen global growth to 3.0% in 2026. The pace of inflation is forecast to continue cooling between now and mid-2025. The forecast thereafter depends heavily on the pace of tariffs and whether we see a full-blown trade war erupt. Global inflation for 2024 stands at 4.5% and expected to be 3.5% for 2025. The global unemployment for 2024 is at 5.3% and expected to be at 5.2% for 2025.
Geopolitical risk remains elevated. With the outcome of the US election, inflationary trade and immigration policies are expected to slow the pace of credit easing. Bond yields have already moved up in response to fears of mounting federal debt and higher inflation. Any major shift in tariffs in the US could trigger retaliatory measures. With Donald Trump winning the presidency, the US outlook might alter slightly in the near term, facing both upside risks (eg tax cuts) and downside risks (eg tariffs and labour supply constraints due to stricter immigration controls)
Most major central banks, except for the Bank of Japan, have initiated rate-cutting cycles. The US dollar initially weakened following the start of the Federal Reserve’s first rate cut in September. However, the US dollar reversed course and moved up on higher inflation expected post-election. Russia and Turkey, along with Eastern European nations, are expected to struggle with inflation for longer.
Indian Stock Market Highlights
2024 ended positively for investors, with Nifty delivering an 8.8% return, though it was a volatile year. After reaching a lifetime high in September, Nifty corrected multiple times. The year marked a shift, with old market drivers fading and new ones emerging. Historically, the Indian market relied heavily on Foreign Institutional Investors (FIIs), but in 2024, despite FII net selling of Rs 2.96 lakh crore (including Rs 1.14 lakh crore in October), retail investors played a key role in supporting the market. Small- and mid-cap stocks outperformed, with Nifty Smallcap 250 and Nifty Midcap 150 posting returns of 25% and 23%, respectively.
IPO market: Over 300 initial public offers (IPOs) collectively raised a remarkable Rs 1.8 lakh crore in 2024, beating the previous record of Rs 1.3 lakh crore in 2021 and significantly outpacing Rs 57,600 crore raised in 2023. Among these, there were 78 mainboard IPOs, while the remaining were SME IPOs. Among the 78 mainboard IPOs, 69% are trading at a premium to their offer prices, with 11 trading over 100% above their issue prices. SME IPOs outshone mainboard IPOs, with 28 of 231 SME IPOs listing at premiums exceeding 100%, compared to just four among mainboard IPOs.
Regulatory Update:
Key regulatory changes in 2024 aimed at curbing speculative trading in the F&O segment, particularly around weekly expiries:
Weekly Expiries Limited to One Contract: Starting Dec 1, 2024, only one benchmark index contract (Nifty 50 for NSE, Sensex for BSE) will be available per exchange for weekly expiries.
Increased Margin on Expiry Days: A 2% additional exposure margin has been added to all short option contracts, making expiry-day trading more expensive.
Larger Contract Sizes: Lot sizes for all index options contracts will increase by 2-3 times, raising the notional trading value from ₹5-10 lakh to ₹15-20 lakh.
No Calendar Spread Margin Benefits on Expiry Day: Intra-day position limits will be more tightly monitored.
Options Premium Collection Upfront: SEBI now requires upfront collection of options premiums.
Securities Settlement Directly to Demat Accounts: Stocks will be settled directly to investors’ demat accounts, eliminating brokers’ pool accounts.
T+0 Settlement Option: Starting April 1, 2024, T+0 settlement of stocks became available in phases.
Additionally, derivatives volumes dropped 37% in December, with the average daily turnover (ADTV) for the options segment at ₹280 trillion, the lowest since June 2023. This decline is expected to continue as higher contract sizes for weekly derivatives take effect in January 2025.
Upcoming Events and Updates
There are two big events that the government can utilise to spur growth. In the upcoming Budget in Feb’25, the government can put more money in the hands of the taxpayers to revive the growth. At the same time, we need to generate more employment that can help income and, in turn, consumption.
.Another lever is monetary policy. For the eleventh consecutive meeting, the RBI has held the repo rate steady at 6.5% in Dec’24, signalling its commitment to inflation management while supporting economic growth. The RBI can consider cutting interest rates post-budget to revive consumption & capex cycles at the same time managing inflation, economic growth and take policy measures to revive credit growth.
State Elections: With several critical state elections on the horizon, market sentiment could be swayed by the outcomes and their implications for policy continuity. Investors will closely monitor whether the results strengthen the central government’s mandate, which could pave the way for more robust economic reforms. Uncertainty in the lead-up to the elections might result in short-term volatility in equity markets.
Currency market update
The Indian rupee fell for a seventh straight year in 2024, largely due to headwinds in the last quarter, including Donald Trump’s U.S. election victory-spurred surge in the dollar, while locally, slowing growth and a wider trade deficit weighed. The rupee dropped 2.8% in 2024 to end the year at 85.62 per U.S. dollar. It fared better than many of its Asian peers, which declined between 3% and 12% due to the dollar’s strength and multiple twists and turns in the outlook on U.S. policy rates. The rupee was only marginally weaker at the end of September, but it slid nearly 2.2% in the last quarter and hit multiple record lows. In 2025, traders will keep an eye on potential U.S. trade tariffs which may dampen the outlook for emerging market currencies, especially the Chinese yuan. India’s growth trajectory will be the other key variable alongside any potential changes in RBI’s forex strategies under the new governor.
The 10-year US yield has risen 72 bps in 2024 to 4.59%, and the dollar index has strengthened 6.6% to around 108, it’s highest in two years. Expectations of inflationary policies under the Trump administration and hawkish guidance from the FOMC – signalling 50bps of rate cuts in 2025, down from 100bps earlier – have driven US yields and the dollar higher. This has led to capital outflows from emerging markets, putting pressure on their currencies, including the rupee. Barring brief periods, Brent crude oil prices have largely remained range bound in 2024, trading between $69.7 and 81.1 per barrel over the past three months. Increased non-OPEC supply and weak Chinese demand have kept prices stable, offering some support to the rupee.
Commodity market Update
Gold & Silver Update: Gold has surged more than 26% while silver has risen by 34.4% in 2024 and outperformed key indices due to geopolitical tensions, US monetary easing, and rising renewable energy demand. Returns on gold are not uniform across the globe, as currency fluctuations play a significant role. If you had purchased gold in India, your returns would not match the 26% gain in 2024, as currency depreciation impacts the returns. In India, your returns would be approximately 19.7%. Gold closed at Rs 79k/ 10 gm as on date and Silver closed at Rs 91.5k/ 1kg.
Gold and silver 2025 outlook
The prices of gold and silver will depend on various scenarios:
Base case: Prices may remain range-bound with modest upside, supported by stable interest rates, low inflation, and a weaker US dollar.
Bullish scenario: Gold could reach new highs due to a dovish Fed, rising geopolitical tensions, financial instability, and strong demand from central banks and investors.
Bearish scenario: Prices may decline in a high-interest-rate environment, with stronger competition from equities and real estate. Prolonged high interest rates in Asia could weaken demand.
Gold is expected to stay elevated compared to historical averages, while silver may see modest gains due to supply constraints. Both metals are likely to continue attracting investors as safe-haven assets amid inflation concerns.
Despite their strong performance, gold and silver can experience periods of underperformance. Investor should maintain diversified portfolios with proper asset allocation, including gold and silver.
Outlook for the Global Market
Geopolitical Tensions in West Asia: Ongoing tensions could disrupt supply chains and cause crude oil price volatility, impacting inflation and the trade deficit. This may affect sectors like oil and gas, increase India’s import bill, and dampen investor sentiment in the short term. A de-escalation could benefit the market.
US Monetary Policy: The Federal Reserve’s interest rate decisions will influence foreign investment in India. A hawkish Fed could strengthen the dollar, leading FIIs to take a cautious stance on emerging markets, while rate cuts might increase inflows into Indian equities.
The US market may perform well in 2025 due to a stronger dollar and economy. With Donald Trump winning the presidency, the outlook could shift with potential upside risks (e.g., tax cuts) and downside risks (e.g., tariffs and tighter immigration controls).
Outlook for the Indian Market
The year 2024 was a milestone for Indian investors, with strong market performance, particularly in small- and mid-cap segments, and a surge in market capitalization. Despite global and domestic challenges, India’s economic resilience, policy reforms, and growing retail participation boosted confidence. Key sectors like banking, IT, and manufacturing drove growth, solidifying India’s position as a top investment destination. The upcoming Budget, RBI policies, corporate earnings, and a robust IPO pipeline are expected to shape the market further.
In previous outlooks, we cautioned against high valuations and advised waiting for better entry points, along with partial profit booking, diversification, and rebalancing based on sectors, valuations, and risk management. In July 2024, we predicted Nifty could touch 22.5k during corrections with further downside, and it is now near 23k. The market is offering better entry and valuation opportunities, with staggered rebalancing and lump-sum investments alongside regular SIPs. Further corrections may occur due to global and domestic factors, making it difficult to time the market. A prudent approach is to continue SIPs, add during corrections, and stay diversified with dynamic asset allocation strategies aligned with financial goals, risk tolerance, and time horizon. Be sure to consult your investment advisor for review.
Fundamental outlook: Indian market is trading at better valuations after corrections. The corrections were seen across sectors including largecap, midcap and smallcap space. Many individual stocks have corrected even more. The corrections between 10% to 40% gives opportunity to invest in quality stocks from long term perspective. There are still many headwinds like geo political risk, unemployment, inflation, US policies and FED rates which may impact the economy and market. Market may experience further volatility from here and events, policies will provide further directions.
Technical outlook: Indian market has been volatile this month with downtrend as of now. Nifty is unable to sustain above 23350 since last few days. However immediate support is seen at 23000 levels and broad trading range is zone of 23k to 24.5k. Nifty is volatile with mixed trend on basis of various technical parameters. The monthly RSI of 61 indicates neutral trend whereas weekly RSI of 41 indicates market is in oversold zone due for pull back. The immediate resistance for nifty is 23750 and may face strong resistance at 24500 level. The immediate support for nifty is seen at 23000 and major support at 22500.
