Insights into Q1 FY25 Equity Market Prospects

Brokerage Free Team • May 9, 2024 | 5 min read • 819 views

As we delve into the initial days of the new financial year 2024-25, the spotlight remains on the quarterly results disclosed by companies, marking a significant aspect of the season. However, the primary inquiry lingering in most investors' minds pertains to the equity market outlook for FY25, especially concerning how the first quarter of the new financial year might unfold in the equity markets.

Optimism in the Air:


The overarching sentiment in the market leans towards optimism for the upcoming year, buoyed by sustained momentum in preceding months. India's trajectory towards becoming the world's third-largest economy by 2027 fuels this optimism, with expectations of a rising tide of foreign investments in domestic equity markets. In this narrative, we delve into the general equity market outlook for the first quarter of FY25 while examining potential dampeners to the overall positive forecast.


A Stellar Beginning in the June Quarter:


The equity markets kickstarted Q1 FY25 on a stellar note. In the trading session commencing Monday (April 8, 2024), both the S&P BSE Sensex and the NSE Nifty 50 soared to fresh all-time highs of Rs. 74,869.30 and Rs. 22,697.30, respectively. These record-breaking peaks underscore the prevailing optimism among traders, hinting at a broadly positive equity market outlook.


Experts mirror this sentiment, suggesting that the market currently rides on a unique blend of bullish sentiment and ample liquidity. This favorable environment benefits traders eyeing short-term gains as well as long-term investors with a keen interest in market longevity.


The Pre-Election Rally:


The scheduled Lok Sabha elections, spanning 7 phases in the first quarter of FY25, along with the subsequent declaration of results within the June quarter, set the stage for a pre-election rally. Benchmark indices surged, setting new records in anticipation of the electoral events.


The prevailing bullish sentiment, attributed to expectations of political continuity, lays the groundwork for a potentially rewarding equity market outlook in Q1 FY25. Businesses and investors anticipate the continuation of favorable policies, propelling the bullish sentiment forward.


GDP Growth Dynamics and Market Impact:


The recent Monetary Policy Committee (MPC) meeting by the Reserve Bank of India slightly revised GDP growth targets for FY25. Notably, the GDP growth target for Q1 FY25 decreased marginally from 7.2% to 7.1%. This nuanced adjustment indicates a moderated expectation of economic growth in the initial quarter of FY25, potentially impacting the equity market outlook as conservative investors may interpret this as a sign of growth adjustments.


The market sentiment might reflect this caution, potentially tempering the market outlook. However, this caution could be offset by the highly optimistic pre-election rally that has dominated market sentiment.


CPI Inflation and Market Sentiment:


Recent projections by the RBI for CPI inflation in FY25 shed light on potential market sentiment shifts. The expected CPI inflation rate for Q1 FY25 stands at 4.9%, slightly higher than the overall FY25 projected rate of around 4.5%. This elevated inflation rate in the initial quarter may dampen investor sentiment marginally, reflecting concerns about inflationary pressures across sectors.


Different sectors respond distinctively to inflation. While retail services and consumer goods sectors may experience margin-related pressures due to heightened input costs, sectors like commodities and real estate may benefit from inflationary pressures, contributing to a nuanced market sentiment.


Key Sectors in Focus:


Understanding the equity market outlook entails a closer look at sectors drawing attention in Q1 FY25. Sectors like banking, finance, cement, capital goods, and metals are anticipated to be in focus due to strong rollovers. Conversely, sectors like pharmaceuticals, automobiles, chemicals, and real estate may experience a short squeeze.


Reflecting investor expectations, the NSE Metal Index demonstrated promising movements, particularly in leading stocks like Tata Steel and JSW Steel, indicating long build-ups. Conversely, the NSE Pharma Index experienced a slight decline, reflecting sector-specific dynamics.


Echoes of the Past Year's Rally:


FY24 witnessed remarkable rallies in the equity market outlook. While the initial trading sessions in Q1 FY25 echo a continuation of the bull market, questions linger about whether this trajectory will repeat itself this year. Various factors, including the pre-election market sentiment and a robust start to the year, support this possibility. However, factors like the RBI's cautious projections and geopolitical tensions may counter this optimism.


Final Thoughts:


Despite potential challenges, the consensus around the equity market outlook remains upbeat for Q1 FY25. Optimistic projections regarding India's long-term equity market growth, including S&P's raised growth forecast for FY25 at 6.8% and expectations of India's market capitalization hitting the $10 trillion mark by 2030, fuel this sentiment. Over 50 companies filing preliminary IPO documents with SEBI further underscore the positive market sentiment, pointing towards a vibrant market landscape ahead.


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