Synopsis: Nomura projects a cautious outlook for India's stock market in 2025, setting a Nifty target of 23,784 by December. This projection reflects concerns over high valuations, potential economic slowdown, and global uncertainties. The brokerage advises investors to adopt a selective approach, favoring sectors with relative valuation comfort such as financials, FMCG, oil and gas, telecom, pharma, power, internet, and real estate.
Global brokerage firm Nomura has set a cautious tone for India's stock market in 2025, projecting the Nifty 50 index to reach 23,784 by December.
This forecast suggests a modest upside of approximately 0.5% from current levels, indicating muted returns for investors in the coming year.
Valuation Concerns Amid Economic Slowdown:
Nomura's tempered outlook is influenced by several factors, including elevated market valuations and signs of an economic slowdown.
The Nifty is currently trading at 19.4 times one-year forward consensus earnings, slightly above the pre-COVID average of 17.7 times.
This premium valuation, coupled with a deceleration in earnings growth, raises concerns about potential market corrections.
The brokerage also highlights the risk of a slowdown in investment growth and an increase in equity risk premiums due to global trade conflicts and macroeconomic uncertainties.
Selective Investment Strategy Recommended:
In light of these challenges, Nomura recommends a highly selective investment approach.
The firm is overweight on sectors that offer relative valuation comfort and are poised to benefit from domestic growth drivers.
These sectors include financials, fast-moving consumer goods (FMCG), oil and gas, telecom, pharmaceuticals, power, internet, and real estate.
Conversely, Nomura maintains an underweight stance on consumer discretionary, automobiles, capital goods, cement, hospitals, and metals, citing concerns over stretched valuations and potential earnings downgrades.
Top Stock Picks:
Within its preferred portfolio, Nomura has made strategic adjustments, adding Axis Bank and removing Nippon Life India Asset Management, Hyundai Motor India Ltd, and GE Vernova T&D India Ltd.
The brokerage's top stock picks in the financial sector include State Bank of India (SBI), ICICI Bank, Axis Bank, Federal Bank, Bajaj Finance, and SBI Life Insurance.
In the FMCG space, Marico, ITC, and Hindustan Unilever are favoured.
Other notable recommendations encompass Mahindra & Mahindra and Uno Minda in the automotive sector; Larsen & Toubro in infrastructure; Infosys, Coforge, and Wipro in information technology; Reliance Industries and Hindustan Petroleum Corporation Ltd (HPCL) in oil and gas; Lupin and Dr. Reddy's Laboratories in pharmaceuticals; JSW Energy and Tata Power in the power sector; Macrotech Developers in real estate; and JSW Steel in metals.
Economic Growth Projections:
Nomura anticipates India's GDP growth to slow to 5.8% in 2025, down from 6.5% in 2024.
This projection is below the Reserve Bank of India's forecast of 7.2% growth for the same period.
The brokerage attributes this slowdown to mixed economic signals, including weakened urban consumption, soft industrial indicators, and reduced government revenue expenditure, despite improvements in rural growth and public capital expenditure.
Conclusion:
While India's structural growth story remains compelling, Nomura advises caution for investors navigating the 2025 market landscape.
High valuations, potential economic headwinds, and global uncertainties necessitate a selective investment approach.
Focusing on sectors with favourable valuations and robust domestic growth prospects may offer resilience in the face of anticipated market volatility.
Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
