What to Expect in Equities and Debt in 2025: A Mutual Fund Perspective – News18
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The stock market in 2025 is set to ride on strong economic growth and government efforts to boost infrastructure and digital innovation.
In 2025, mutual funds may be a smart choice for investors looking to achieve their financial goals.
Authored By Deepak Ramaraju:
As we enter 2025, the financial markets offer a mix of opportunities and challenges for investors in equities and debt. Mutual funds may help investors grow their wealth by tapping into these trends. Key factors like economic stability, company profits, and global events will shape equity markets, while interest rates and credit opportunities will guide the debt market.
Equities in 2025
Indian equities in 2024 were buoyant amidst a challenging and eventful year with higher volatility. The markets were volatile with multiple global events, a slowdown in the Indian economy, tighter liquidity conditions and delayed government spending. However, a recent cut in CRR is expected to ease the liquidity conditions followed by a pickup in government spending. These two factors are expected to improve overall consumption and pickup in industrial output.
The stock market in 2025 is set to ride on strong economic growth and government efforts to boost infrastructure and digital innovation. Sectors like capital goods, technology, financial services, consumption, and healthcare are expected to shine, with emerging areas such as semiconductors, electronic and manufacturing, renewable energy and electric mobility grabbing more attention.
Capital expenditure by the government till October 2024 stood at Rs 4,66,545 crores, only 42% spent of budgeted Rs 11,11,111 crores for FY25. This compares with nearly 55% spending in the year ago period. With government stepping up investments in the 2H, sectors such as infrastructure, defense and railways may witness recovery. FMCG, badly hit by urban consumption slowdown, could witness recovery as valuation looks attractive. Besides, with government spending revival and possible interest rate cut in 1HCY25, urban consumption should recover.
IT, which has already recovered from its lows after rate cuts, may do well in 2025 as discretionary spending picks up, provided Trump does not impose any surprise tariffs. Banks may also witness recovery post interest rate cuts resulting in possible pick-up in credit growth. Moreover, the recent CRR cut by 50 bps (in two tranches) should boost liquidity and credit growth in the banking sector.
Of course, global events and changes in monetary policies might cause some bumps along the way. That’s why it’s smart to keep a balance—investing in stable large-cap stocks while also tapping into the growth potential of mid- and small-cap companies. A thoughtful mix can help navigate the ups and downs and make the most of what’s shaping up to be an exciting year for equities.
Debt in 2025
The outlook of the Indian debt market will be guided by how effectively the RBI would be able to cover the last mile of inflation trajectory towards the 4% mark on a durable basis. On the look of it the forward projections of RBI point to the inflation numbers to be moving towards the 4% mark in the Q2 FY 2026. Though the core inflation is under the control of the RBI the highly volatile food inflation and the persistence of the same on the headline inflation would guide the inflation outlook for the next year.
The composition of the MPC would undergo a major change in the ensuing financial year and would be of utmost importance whether the continuity in policy formulation is maintained.
On the financial markets side, the demand supply dynamics for long term bonds seem favourable as demand from high value buyers like insurance companies, EPFO and pension fund is set to continue. In addition to the above passive flows from FIIs courtesy inclusion of Indian Government securities in world bond indices will further help. The government is likely to continue towards the fiscal glide path by announcing fiscal deficit of lower than 4.5% of GDP for the fiscal FY 26. With shallow rate cuts, somewhat softer growth outlook and favourable demand supply in G-Sec the long-term yields may decline. In what could be a major market moving factor with the fiscal deficit in control and with reforms process being continued with the stable government at helm, the chances of a sovereign rating upgrade could be on the anvil.
The risk to the above outlook rests on pivotal events that could change the economic, geopolitical, and financial market landscape. In the US, we will have greater clarity on the policy agenda as President Trump takes office in January. In China, policymakers are likely to provide further policy support measures to revive growth. Furthering Trump’s agenda would raise the risk of inflation limiting the Fed’s headroom to continue cutting rates. The above factors can have varying impact on India’s domestic yields trajectory and currency movement/volatility.
Conclusion
In 2025, mutual funds may be a smart choice for investors looking to achieve their financial goals. By keeping an eye on economic trends and sectoral opportunities, and with the guidance of expert fund managers, investors can build a strong and balanced portfolio to grow their wealth.
In a rapidly changing economic environment, mutual funds seems to be effective tool for managing investments, whether the goal is wealth growth, stability, or both. By aligning their strategies with market trends and leveraging the insights of experienced fund managers, investors may position themselves to make the most of what 2025 has to offer.
(The author is senior fund manager, Shriram AMC)
(Disclaimer: Views expressed herein cannot be construed to be a decision to invest. The statements contained herein are based on current views and involve known and unknown risks and uncertainties. Any reliance on the accuracy or use of such information shall be done only after consultation to the financial consultant to understand the specific legal, tax or financial implications.)