Economic Survey 2024-25 cautions against 'meaningful' market correction in 2025

Sounding a enactment of caution connected the elevated banal marketplace valuation, the Economic Survey 2024-25 connected Friday (January 31, 2025) said immoderate correction successful the U.S. markets could person a cascading effect successful India, which has witnessed accrued information from young investors post-COVID.

Over the past fewer years, retail participation, particularly from young investors, has importantly accrued successful the equity markets. Investor information has grown from 4.9 crore successful FY20 to 13.2 crore arsenic of December 31, 2024.

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“Elevated valuations and optimistic marketplace sentiments successful the U.S. rise the likelihood of a meaningful marketplace correction successful 2025. Should specified a correction occur, it could person a cascading effect connected India, particularly fixed the accrued information of young, comparatively caller retail investors.”

"Many of these investors who person entered the marketplace post-pandemic person ne'er witnessed a important and prolonged marketplace correction. Hence, if 1 were to occur, its interaction connected sentiment and spending whitethorn beryllium non-trivial," the Survey noted.

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According to the Survey, the emergence successful retail information aligns with a dependable diminution successful the five-year rolling beta betwixt the Nifty 50 and the S&P 500 successful the past 4 years, suggesting a reduced sensitivity of Indian markets to U.S. marketplace movements.

This decoupling is further evidenced by the expanding resilience of Indian markets during periods of FPI (Foreign Portfolio Investors) outflows. For instance, successful October 2024, contempt FPI outflows of $11 billion, the Nifty 50 scale was corrected by lone 6.2%, acknowledgment to beardown downside enactment provided by home organization and idiosyncratic investors.

In contrast, during the March 2020 pandemic-driven marketplace sell-off, FPI outflows of $8 cardinal triggered a steep 23% marketplace decline.

"Even arsenic the resilience demonstrated by the Indian market, supported by increasing retail participation, is promising, the risks associated with a imaginable U.S. marketplace correction cannot beryllium overlooked, fixed humanities trends," the Economic Survey 2024-25 said.

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Historical information suggests that the Indian equity marketplace has been notably delicate to movements successful the U.S. market. The Nifty 50 has historically shown a beardown correlation with the S&P 500, with investigation of regular scale returns betwixt 2000 and 2024, revealing that successful 22 instances erstwhile the S&P 500 corrected by much than 10%, the Nifty 50 posted a antagonistic instrumentality successful each but 1 case, averaging a 10.7% decline.

On the different hand, during 51 instances erstwhile the Nifty 50 experienced a correction of much than 10%, the S&P 500 exhibited affirmative returns successful 13 instances, with an mean instrumentality of -5.5%.

This suggests the "asymmetric narration betwixt the 2 markets, highlighting a much pronounced interaction of the question successful the U.S. markets connected Indian equities than the different mode around."

The Survey stressed that the superior markets are cardinal to India's maturation story, catalysing superior enactment for the existent economy, enhancing the financialisation of home savings, and enabling wealthiness creation.

As of December 2024, the Indian banal marketplace has achieved caller highs, with intermittent corrections, successful the midst of geopolitical uncertainties, currency depreciation and home marketplace volatility challenges. Investor information has been a contributor, with the fig of investors increasing from 4.9 crore successful FY20 to 13.2 crore arsenic of December 31, 2024.

This growth, combined with progressive listing enactment and caller measures by the regulator, Securities and Exchange Board of India (SEBI), to temper excesses, is expected to foster sustainable marketplace expansion.

The superior markets continued to witnesser heightened listing activities and capitalist enthusiasm successful FY25, notwithstanding the marketplace volatility and geopolitical uncertainties. As per the E&Y Global IPO trends, Indian banal exchanges supply conducive marketplace conditions for overseas conglomerates to database their section subsidiaries, thereby offering a bully accidental for unlocking value.

India's stock successful planetary IPO listings surged to 30% successful 2024, up from 17% successful 2023, making it the starring contributor of superior assets mobilisation globally.

Published - January 31, 2025 04:01 p.m. IST