The last six months have kept stock market investors, especially newbies, on tenterhooks. After a great run of over four years, many would not have been prepared for the steep correction. However, there is good news for them. Despite the sharp fall in the second half, returns from the stock market are still in the positive territory in FY25, which is ending on Monday. Better still, real returns (returns minus consumer price index) of benchmark indices are also at par with the consumer price index (CPI) with broader markets doing slightly better. While the average CPI was at 4.75% (till February), both the Sensex and Nifty have returned over 5% each.
In fact, over the past decade, the benchmark indices have given average real returns of over 8.2%, which is slightly lower than gold at 8.4%, but higher than silver’s 7.5%. The broader indices, however, have scored with the BSE mid-cap and BSE small-cap giving handsome returns of over 14% and 16%, respectively. In FY25, investors saw two completely different sides of the market. While the 30-share Sensex returns of 14.46%% in the first half gave hopes to investors that they could be staring at another blockbuster year like FY24 – when returns were 24.85% – the correction in the last six months forced them to pare down expectations.
The decline began around end-September when a spate of bad news hit at the same time. For starters, foreign portfolio investors (FPIs) started looking at the lower-valued Chinese market favourably due to the government’s attempts to pump prime the economy through higher expenditure. The Indian economy also faltered in the second quarter, with the growth rate hitting 5.6%. Though things have improved significantly in the third quarter (6.2%), the Reserve Bank of India (RBI) had to reduce the GDP forecast from an impressive 7.2% for FY25 to a more conservative 6.6%.
At the same time, India Inc’s disappointing second and third quarter earnings growth brought the focus back on the already-high valuations. Add to this heady cocktail the beginning of US Federal Reserve’s rate cut cycle and President Donald Trump’s re-election, along with tariff tantrums, and the bears were able to deliver a knockout punch to the bulls that saw benchmark indices falling over 8% and broader markets over 15% in the past six months.
Nimesh Chandan, CIO, Bajaj Finserv AMC, attributed the slowdown in the second-half to an extended monsoon, delays in decision-making during elections, along with outflows of foreign investors. He noted that a key shift in market trends is the transition from capex-driven to consumption-led growth. “With increased government spending at both central and state levels, consumption related sectors are expected to drive earnings,” he said.
Naveen Kulkarni, CIO, Axis Securities PMS, added that due to the GDP coming below expectations in the first half and rising global risks, money has move moved to gold. However, he believes that there is end of the earning downgrade cycle, as Q4 numbers should be sequentially better. “Next year should be better overall considering the base-effect of the first half next year is going to be low, and we could see some pick-up in Q2.” He added that FY26 will be a little more stock-specific than last year and quality should be bought.
Chandan added that currently every headline on tariff is causing anxiety and volatility. “Since investors are unable to ascertain the exact earnings in affected business, they are adjusting to uncertainty by lowering the valuation,” he said.