GR Exclusive: Indian Stock Market Well-Poised To Outperform In 2025, RBI Likely To Cut Rates After Budget FY26

The resilience of retail investors has emerged as the defining factor for the Indian stock market in 2024, said Sunil Damania, Chief Investment Officer, MojoPMS in an interview with GoodReturns.In. He believes the long-term trajectory of Indian equities remains intact, and is well-poised to outperform global markets not only in 2025 but also in the next decade.

For the year 2025, Damania believes that it will see a more stock-specific market environment, while select sectors will contribute to growth instead of broad-based rallies. In regards to RBI's policy and its impact on stocks and Indian rupee, Damania said, the first rate cut is likely to follow after the Union Budget FY26 which will be announced on February 1, 2025. He expects a total 75 bps rate cut in 2025, with the first easing in February 2025 bi-monthly monetary policy.

With the rate cut outlook, Damania believes the rupee will depreciate in the range of 2-2.5% in 2025, and is well-positioned to be attractive compared to peers.

Overall, he believes every market correction in 2025, is a buying opportunity. Here are the excerpts from the interview of Sunil Damania, Chief Investment Officer, MojoPMS with GoodReturns.In:

Q. What was the most driving factor of the Indian stock market in 2024? With the latest corrections, do you think the Indian market is still overvalued?

The resilience of retail investors emerged as the defining factor for the Indian equity market in 2024. Unlike in the past, investors displayed remarkable maturity by embracing market volatility as an opportunity rather than a deterrent. Retail investors deployed record-high funds into equities, surpassing the previous peak in 2021 over and above steady SIP inflows into mutual funds. This demonstrates a growing awareness of equity investing as a powerful tool for long-term wealth creation.

Recent market softness stems from subdued corporate earnings and slowing GDP growth, which we view as temporary setbacks. India's long-term growth story remains intact, supported by stronger balance sheets, better return on equity (ROE), and a favourable economic outlook. While some segments of the market exhibit stretched valuations, earnings growth should justify current levels over time. Notably, the Nifty's 10-year CAGR is just 11%, indicating that price appreciation has lagged earnings growth, reinforcing our positive long-term view.

Q. What is your outlook for the Indian market in 2025?

We anticipate a more stock-specific market environment in 2025, with select sectors driving returns rather than broad-based rallies. Investors will likely shift focus back to quality stocks with strong fundamentals, emphasizing profitability and sustainability over momentum-driven plays. Stock selection will be critical, requiring a more disciplined and research-driven approach.

Q. When do you expect the RBI to start easing the policy cycle? How much basis points rate cut do you expect in FY26 and its impact on stocks and the Rupee?

We expect the RBI to reduce policy rates by at least 75 basis points, with the first cut likely following the Union Budget announcement. However, persistent food inflation remains a significant risk. Encouragingly, India has seen a strong kharif harvest, and early signs point to a promising rabi season. The absence of El Niño could further mitigate inflationary pressures, supporting the case for monetary easing.

Despite the rupee touching new lows, its depreciation has been more controlled than other emerging market currencies, reflecting underlying strength. The RBI's intervention has kept volatility in check. We anticipate a modest 2-2.5% depreciation over the next 12 months, positioning the rupee favourably against global peers.

Q. What will be the support and resistance of Sensex, and Nifty for 2025?

India remains well-positioned to be one of the top-performing markets globally over the next decade. Investors should adopt a long-term investment horizon, ideally five years or more, rather than being swayed by short-term index fluctuations. Every market correction should be seen as a buying opportunity, reinforcing the importance of disciplined equity allocation for wealth creation.

In 2024 so far, Sensex has surged by +6,346.59 points or 8.8%, while Nifty 50 outperformed with a strong upside of 2,035.50 points or 9.4%. Both Sensex and Nifty however have witnessed sharp correction after they touched their all-time high of 85,978.25 and 26,277.35 in late September 2024. Currently, the Sensex is below 80,000 and the Nifty is under the 24,000 mark.