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India’s equity markets navigated a turbulent first quarter of 2025, marked by significant volatility after a remarkable run in 2024. Following a series of record highs late last year, both benchmark indices, the BSE Sensex and the NSE Nifty 50, experienced sharp declines. The Nifty 50 index declined approximately 14% from its September 2024 peak, marking its longest losing streak since 1996. India’s equity market outlook for Q2 remains cautious, influenced by both domestic challenges and global uncertainties.
Investor sentiment weakened primarily due to slowing GDP growth. In January, India’s National Statistical Office (NSO) forecasted a GDP growth rate of 6.4% in the fiscal year 2024-2025 ending in March. This is down from 8.2% the previous year and would be the slowest growth in four years. Also the Reserve Bank of India lowered its growth forecast to 6.6%, from its earlier prediction of 7.2%.
Foreign investors amplified the volatility in India’s equity market. As of March 7, 2025, foreign investors have withdrawn approximately $15.8 bn from Indian equities, according to data from the National Securities Depository Limited (NSDL). This significant outflow reflects concerns over slowing economic growth and corporate earnings.
However, optimism about India’s long-term equity market outlook remains intact. In their bull-case scenario, Morgan Stanley expects the Sensex to hit the 105,000 mark by the end of the year. This would be a rise of about 40% from current levels as of March 7, 2025. The base scenario sees the index up around 25%, while the bear-case scenario expects the Sensex to slide nearly 6%.
The most significant risks, according to Morgan Stanley’s report from March, are global factors including global economic growth and US policy changes. “A global recession or a near recession will challenge our call and keep the Indian equities off highs in 2025,” the report says.
Despite these short-term pressures, long-term optimism surrounding India’s economic and market potential remains robust. Martin Currie sees India’s journey far from complete. “With superior earnings growth forecasted for the coming years, Indian companies are poised to drive forward the broader asset class, promising exciting opportunities for investors,” the asset manager comments in a recently published insight.
According to the equity specialist within Franklin Templeton, the consensus forecast for the next three years estimates India will deliver “superior earnings growth for shareholders compared to the US and other developed markets”.
Market outlook India – long-term growth trend remains unchanged
Although the projected GDP growth of 6.4% for fiscal year 2024-2025 represents a slight downgrade, it is worth noting that India is still the fastest growing major economy in the world. On average, the economy grew 6.4% over the past two decades (2004–2024).
Many economic observers believe the slowdown will only be temporary. Morgan Stanley highlights India’s remarkable ascent, projecting it to become the world’s third-largest economy by 2028, surpassing Japan and Germany. According to the analysts, the Indian economy will grow from $3.5 tn in 2023 to $5.7 tn in 2028. By 2029, the country’s share in the world GDP is expected to rise to 4.5%.
Factors contributing to this trajectory include demographic dividends, accelerating urbanisation, and significant advancements in digital infrastructure. As per Morgan Stanley, structural reforms and a favourable business environment have also enhanced India’s attractiveness for foreign investors.
Deloitte has revised its annual GDP growth projection for India to 6.7% and 7.3% for fiscal year 2025-2026, naming rising consumption, continued capital expenditure, and a recovery in private investment activity as factors driving the Indian markets outlook.
Additionally, a Deloitte report states that increasing participation from domestic institutional investors has provided crucial stability to India’s capital markets amid global uncertainties.
“This reinforces confidence in India’s demographic dividend and growing middle-class wealth, which are not only important for driving consumption and strengthening the labour market, but also enhancing the stability of the nation’s financial markets,” explains Rumki Majumdar, economist at Deloitte India.
Alex Smith, Head of Equities Investment Specialists, Asia Pacific, at Aberdeen Investments, highlights that supportive central government policies and a decade of essential economic reforms have set India on a positive trajectory.
“On the corporate front, the acceleration of digitalisation has enhanced efficiency and driven profitability. Meanwhile, efforts to clean up bad debt in the economy have bolstered company balance sheets,” Smith says.
Government spending on infrastructure development projects such as building roads, ports, and railways followed, and private capital expenditure bolstered the economy.
Smith further adds that India is relatively insulated against potential trade and tariff tensions under the second Trump presidency, providing the economy with resilience during periods of global disruption.
India equity outlook – how investors can capitalise on India’s growth story
With a generally positive long-term outlook for India’s equity market, Matthews Asia says the question is not whether investors should get exposure to India but how.
“India has incredible growth rates coming out of many areas and segments as they adjust or benefit from the changes and the broadening out of the economy,” opines Sean Taylor, Chief Investment Officer at Matthews Asia, highlighting financials and consumer discretionary.
Aberdeen’s Smith sees the best way for investors looking to tap into India’s growth potential to focus on quality companies that benefit from long-term structural tailwinds, including aspirational consumption, infrastructure investments, healthcare, and digitalisation.
