Mirae Asset Sharekhan Expects Market Consolidation In 2025 Amid Economic Slowdown

The markets delivered strong performance in calendar year 2024, but Mirae Asset Sharekhan anticipates a consolidation phase in 2025 due to an economic slowdown.

While markets performed well despite a year marked by significant events such as elections in India and the US, rising geopolitical tensions, and the beginning of the interest rate reversal cycle, the rally lost momentum in the fourth quarter. This was driven by weaker-than-expected earnings in the second quarter of financial year 2025, continued selling pressure from foreign institutional investors due to rising US bond yields, a stronger US dollar, and persistent inflation.

"The domestic economy is passing through a mid-cycle slowdown, and earnings growth has moderated significantly to a low single-digit growth rate in the financial year ending March 2025," Mirae said in its 2025 outlook. It also noted that the return of Donald Trump's administration could lead to increased currency volatility and the possibility of a trade war.

These factors could push the market into a consolidation phase, accompanied by a "healthy correction" in the broader market. According to Mirae, this could also eliminate the speculative excess seen in small- and mid-cap stocks over the past two years.

• Trump's Presidency: Policies such as tariffs on imports and corporate tax cuts may trigger trade wars but boost US corporate earnings, impacting global markets.

• RBI Rate Cuts: Mirae forecasts MPC rate reductions to revive real estate and consumption, supporting economic growth.

• Real Estate Growth: The sector’s recovery, driven by affordability and demand for larger homes, is projected to significantly boost GDP and job creation.

• Manufacturing Expansion: Government initiatives and rising consumption may raise manufacturing’s share of GVA from 14% to 21% by 2032.

• Corporate Earnings and Valuations: Nifty 50 earnings growth is forecasted at 13% in 2025, with corporate profit-to-GDP ratios expected to peak by March 2027.

Given the widening valuation gap between large-cap and SMID stocks, Mirae believes quality large-cap stocks offer a better risk-reward proposition going forward. Additionally, large-cap companies have a more stable earnings profile compared to SMID companies.

In addition, the company predicts growth in pharmaceuticals and IT services, alongside engineering, infrastructure, real estate, banks, financial services, and consumer stocks, which are the core multi-year themes of capex.

As the small-cap index has peaked out this year, Mirae expects the small caps to underperform from 2025. The SMID tops when the midcap and large-cap ratios hit the range of 1.5-2, but currently it stands at 2.25. This is an indication that the up move has peaked out and correction will begin.