Sridharan, Founder, https://www.walletwealth.co.in/
Investment Ideas Note – February 2025 – Wallet Wealth
Market Outlook
The Indian equity market faced slight losses when the
market closed on the final day, 31st December 2024. But 2024 was a
good year for equity markets, as SENSEX gained 8.2% and Nifty 50 gained 8.8%
the same year. Key events that were anticipated to affect financial markets in
January were Trump stepping in as U.S. president, Fed rates, RBI rate cuts, the
Union budget, and the inflation rate concerns.
This was followed by Nifty 50 falling sharper since
November 2024. It recorded a single-day loss of 1.5%. Concerns on HMPV, weak
Rupee, and fluctuating crude oil process attributed to the loss. Let’s see the performance of key indices in
January 2025,
|
Index
Performance Jan-2025 |
|
||
|
Date
|
January
1, 2025
|
January
31, 2025
|
Gain/Loss
|
|
BSE
Sensex |
78, 507 |
77,500 |
-1.28% |
|
BSE Midcap
|
46,675 |
43,096 |
-7.67% |
|
BSE
Small cap |
55,750
|
49,958
|
-10.39%
|
BSE Sensex, Midcap, and Small-cap recorded losses in
January. Nifty Banks also recorded a sharpest decline at the beginning of
January. This was due to the low quarterly performance of bank stocks.
The rising US bond yields and the US Dollar were driven
by strong US economic data. This makes investment more attractive in the US
market, and, unlikely US rate cuts were the reason for the hike in US Bond
yields.
FPIs also sold huge shares in the Indian equity market
due to uncertainty hovering around Trump’s trading policies and protectionist
measures.
In summary, factors such as FPI selling, high US bond
yields, strong economic data, and uncertainty about Trump’s policies have
caused a setback in the Indian equity market.
|
NIFTY 50 |
-1% |
|
Nifty midcap 150 |
-6.6% |
|
Nifty Bank |
-3.4% |
Nifty 50 fell by 2.6% in December, compared to November
where the decline was 1.54%. Similarly Nifty midcap 150 and Nifty Bank fell by
0.17% and 2.4% in December 2024.
Though there were downfall in sectors of stock market,
the SIP contribution for October and November 2024 surpassed Rs.25,000 crores,
signifying the domestic investor sentiment.
|
MF/FII
activity |
FII
|
MF
|
|
Equity |
- 72677.21 |
57990.42 |
|
Debt |
-2658.34 |
- 55605.71 |
|
Total |
- 75335.55 |
2384.71 |
January was a selling month for FIIs. As we can see from
the table, FII sold Rs.72,677.21 crores worth of equity and Rs.2658 crores
worth of debt. Concurrently, mutual funds purchased Rs.57,990.42 crores of
equity and sold Rs.2384.71 crores of debt.
In January 2025, Foreign Institutional Investors (FIIs)
pulled out around $9 billion from Indian equities due to several factors,
including rising U.S. Treasury yields making U.S. assets more attractive,
concerns over new U.S. tariffs, high valuations in the Indian market, a
weakening rupee eroding returns, slower corporate earnings growth, and broader
global economic uncertainties. These combined pressures led to one of the
largest monthly outflows on record, prompting FIIs to reassess their exposure
to India’s financial markets.
Despite such massive outflows, Indian domestic investors
supported the Indian market, especially through SIPs. This helped the BSE
Sensex and other indices from deep impact as the domestic buying mitigated the
FII sales.
Trumponmics and Trump X Impact?
The
recent re-election of Donald Trump as U.S. President has significant
implications for the Indian economy, encompassing both potential opportunities
and challenges.
President Trump's "America First" policy
emphasizes reducing trade deficits and promoting domestic manufacturing.
However, India's strategic position could offer advantages. The U.S.
administration's efforts to diversify supply chains away from China present
opportunities for India to attract investments in sectors like electronics,
pharmaceuticals, and textiles.
In summary, while President Trump's policies may
introduce certain challenges for the Indian economy, they also present avenues
for strategic engagement and economic collaboration. India's proactive policy
measures and focus on strengthening domestic industries will be pivotal in
navigating this evolving landscape.
Impact of Tariff Announcements
On February 3, 2025, Indian shares declined following
President Trump's imposition of extensive tariffs on Canada, Mexico, and China.
This move heightened concerns about a broader trade war, leading to a 0.93%
drop in the Nifty 50 to 23,265.1 points and a 0.81% decrease in the BSE Sensex
to 76,874.54. The Indian rupee also weakened past 87 per U.S. dollar for the
first time, reflecting the market's apprehension. (Source Reuters.com)
Conversely, on February 4, 2025, Indian markets
experienced a rebound after the U.S. paused its planned tariffs on Canada and
Mexico, easing global trade war concerns. The Nifty 50 rose by 0.82% to 23,553
points, and the BSE Sensex gained 0.88% to 77,858.88. (Source Reuters.com)
What’s in store for us next?
GDP
data: RBI has revised forecast to 6.6% from 7.2% for the fiscal
year 2024-25. This is due to a slowdown in economic activity in the 2nd
quarter of FY25. To boost this government has announced tax rate cuts to boost
the slowing economy. Despite these strategic moves, continuous monitoring and
adaptive policy measures play a crucial part in the current economic landscape.
Inflation: As
of early February 2025, the Reserve Bank of India (RBI) is anticipated to
reduce its policy repo rate by 25 basis points to 6.25% during the monetary
policy meeting scheduled from February 5 to 7. Though there is an economic
slowdown, the inflation activity remains above RBI’s target of 4%. It reduced
to 5.22% from 5.48% in November.
Rural
consumption: Rural consumption has gained robust growth,
driven by an increase in demand which is supported by government income support
schemes and strong agricultural performance.
Union
budget and tax reforms: The budget increases the income-tax
threshold from 7 lakhs to 12 lakhs. This eliminates the necessity for
individuals earning less than 12 lakhs to pay zero tax. The government is also
planning to invest in infrastructure to compensate for the losses incurred from
taxrate cuts. An initiative to generate 100GW of nuclear power by 2047 through
the Nuclear Energy Mission.
Indian
Rupee: Monetary policy adjustments, anticipated rate cuts, and
dynamic global trade have been the major reasons for Rupee depreciating against
the dollar in 2025.
RBI
Monetary Policy: The Monetary Policy Committee, led by the new
Reserve Bank of India (RBI) Governor, has lowered the repo rate by 25 basis
points to 6.25%—the first reduction in nearly five years. This decision
highlights the RBI’s commitment to supporting growth, enhancing liquidity, and
maintaining flexible inflation targeting. The rate cut was highly anticipated
following the Union Budget that reduced income tax rates, boosting consumption.
Equity
The
market cap over GDP ratio is currently at 117.16. This shows that the market is
modestly overvalued. The zone indicates the little cautious while investing for
a short term.
The
investors can focus investing on large cap & momentum funds and investors
who would like to take a little risk can enter technology funds at this
juncture.
It
is advisable not to invest lumpsum and invest into equity mutual funds over a
20–24-week period. As the valuations of small cap is on the higher side and
hence one can wait and watch before investing in small cap. It’s advisable to
book profits in small cap if there’s a near term goals. We are of the opine
that the large & mid cap funds would outperform the small cap this year.
Debt
The
10-year G-Sec is trading at 6.82% and the 5 Year G-Sec is trading at 6.73%. One
can start looking at high quality corporate bonds and banking & PSU bond
with the maturity of 3 years could possibly generate a decent double-digit
return. The best time to enter duration management funds would be faring better
during this point in time. If one would like to look at parking money for a
period of less than 1 year can look at investing in ultrashort / money market
funds.
We strongly recommend the investors to avoid credit risk funds now.
Sridharan, Founder, https://www.walletwealth.co.in/
If
you need any advice on investments, do call us at 9940116967.
Team Wallet Wealth,
AMFI Registered Mutual Fund Distributor
2nd Floor, No.8A, 2nd Main Road,
Nanganallur,
Chennai – 600 061
Ph: 044-48612114
