Volatility could spike; Nifty 50 may hover near 28,000-29,000 in 2025, says Pankaj Pandey of ICICI Securities

Pankaj Pandey, the head of research at ICICI Securities, expects the Indian stock market to see high volatility next year. He anticipates the benchmark index Nifty 50 to come closer to 28,000-29,000 levels in the calendar year 2025 (CY25). In an exclusive interview with Mint, Pandey shares his outlook on the market, upcoming earnings and the sectors he is positive about.

Edited excerpts:

How do you assess Nifty’s performance in 2024? What were the key factors that moved the markets?

Indian equity market performance in 2024 is a testimony to the importance of being invested in the market amidst widespread apprehensions of the expensive market and the noise of exiting the market.

Given the recent fall, the return of the headline index Nifty 50 may be in the single digits, but the returns of midcap and smallcap indices are more than 20 per cent.

Factors that moved the markets were sustained domestic liquidity, pro-growth policy measures across sectors by the government, and strong macroeconomic parameters varying from improved fiscal position to stable currency.

Healthy corporate earnings and superior ROEs remain the major fundamental factors driving Indian markets.

What are your expectations for the domestic market in the next year? Can we see the Nifty beyond 30,000 by the end of 2025?

Volatility is likely to be higher in the year 2025. Notably, post-COVID-19-induced market fall volatility has been low in the last four years for the Indian markets.

However, one should note that the headline index generally witnesses two to three falls of 10-15 per cent in a calendar year.

Thus, this kind of fall may be witnessed again as we trade at the higher end of the valuation range with a new geopolitical landscape on the horizon.

While it is difficult to imagine Nifty beyond 30,000, we may come closer to that target at around 28,000-29,000 levels in CY25.

What sectors will lead the next leg of the bull run?

Capital goods and capex-related segments still offer investment opportunities. Banking looks attractive, given the lean balance sheet and the majority of bad loan provisioning behind us.

Banks have entered a good credit growth cycle, which, on the one hand, will lead to business growth and provide operating leverage while, on the other hand, leading to strong ROAs.

Auto is another sector we are bullish on, with the tailwinds from premiumisation play and EV adoption at the inflexion point, which will also drive opportunities for the Ancillaries.

We also like the overall digital economy-led adoption plays, be it in services like IT, telecom, etc.

Significant uncertainty surrounds the US Fed’s interest rate path. How could that impact our market?

Market expectations have already taken a hit with the recent FOMC meeting, where they guided for just a 50 bps cut in CY25 instead of the earlier expectation of 100 bps.

Higher US rates may impact export-related names in Indian markets, particularly those in the services area.

As US policy rates are likely to remain higher, strength in the dollar index may delay the flows in Indian equities.

So far in CY24, we have seen almost zero net flows in Indian markets, resulting in Nifty’s relative underperformance against the broader market.

We may see a continuation of the same in the first quarter, where index heavyweights may remain lacklustre, resulting in Nifty consolidation.

How severe are signs of economic slowdown in India? Should we be worried?

The signs of a slowdown in India seem transient in nature. RBI expects GDP growth to rebound to 7.2 per cent in Q4 FY25 from 6.8 per cent in Q3FY25.

The slowdown in Q2 was driven by industry, even as agriculture and services were resilient.

Within the industry, mining and power demand was lower on the back of excessive rainfall.

Some sectors, such as refined petroleum products, iron, steel and cement, reported lower growth.

MPC noted that growth has bottomed out with a number of high-frequency indicators pointing towards a pick-up in activity.

While growth is turning, as seen in higher exports, domestic vehicle demand, and diesel off-take, government capex is expected to revive.

What are your expectations from Q3 earnings? Where do you expect a significant recovery?

The high base of the first half of the financial year 2024 (H1FY24) impacted the earnings of H1FY25, which came in a tad muted at nearly 5 per cent on a year-on-year (YoY) basis.

As we advance, with base normalising and expectations of nearly 7 per cent, earnings growth for full-year FY25E, we expect earnings growth to be a lower double-digit in Q3FY25E.

The oil and gas space should drive earnings for the quarter amidst firm Singapore GRM and healthy marketing margins for oil marketing companies.

It shall be followed by financials space (banks and NBFCs) amid steady double-digit credit growth and stable asset quality.

In the IT space, PAT growth is expected to be high single digit, amid lower furloughs and some currency tailwinds.

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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.