India Market Update: February 2025

Earnings for Q3 FY 2025 (December 2024) are in for half of the Nifty50 constituents. The index reported sales growth of 3.8% Y-o-Y and earnings growth of 10.0% Y-o-Y. While earnings growth has rebounded since March 2024—a welcome sign—it continues to miss street expectations for the second consecutive quarter, following a shortfall in September 2024. Meanwhile, despite positive sales growth, top-line pressure remains evident across sectors.

The Nifty50 Index for December 2024 reported positive sales and earnings growth, largely driven by Financials, Information Technology, Discretionary, and Staples. The biggest earnings gainers were Bharti Airtel, Tech Mahindra, Shriram Finance, SBI Life, and State Bank of India, while the biggest laggards included Adani Enterprises, JSW Steel, Grasim Industries, IndusInd Bank, Tata Steel, Asian Paints, and Tata Motors.

A sharper-than-expected economic deceleration, subdued government spending, and a slower-than-expected revival in private investment have weighed on corporate earnings, prompting a valuation re-rating. This has been reflected in a sell-off by foreign portfolio and institutional investors (FII/FPI). For CY 2024, FIIs/FPIs were net sellers of Indian equities in Q3 FY 2025, though they turned net buyers in December 2024 before resuming their net selling stance in January 2025.

Notably, FII/FPI selling last quarter has intensified to levels last seen at the onset of the pandemic. The US$11 billion sell-off in October 2024 marked the largest single-month outflow, surpassing the US$8 billion sell-off in March 2020. Meanwhile, the US$9 billion outflow in January 2025 signals that CY 2025 will continue to be a choppy year, where immediate earnings visibility will take precedence over India’s long-term structural growth story.

Amid this foreign sell-off, the Nifty50 Index has corrected ~14% from its all-time high closing of 26,216 on September 26, 2024, to 22,554 as of February 24, 2025. However, despite record FII outflows, the Indian benchmark has shown relative resilience, supported by strong domestic investor participation, as local investors remain committed to India’s long-term structural growth narrative.

Following the Nifty50 Index’s correction from its all-time high, valuations now appear more reasonable based on 12-month blended earnings. With a five-year average P/E of 21.6x, the index is currently trading at 18.8x forward earnings as of February 24, 2025. This places it 1.0 standard deviation below its historical mean, suggesting that the index is now fairly valued with some degree of undervaluation relative to its next 12-month earnings.

As of February 24, 2025, analysts covering the Nifty50 Index project Earnings Per Share (EPS) to grow from ₹1,075 to ₹1,352 over the next two years, implying a ~12.1% CAGR.

As we navigate 2025, the Indian economy remains at a critical juncture. Despite global tensions, economic uncertainty, and a broader slowdown, India retains its status as one of the fastest-growing economies. However, a revival in earnings will depend on private consumption recovery—with rural consumption showing encouraging signs—and a rebound in private investment. Additionally, government capex in H2 FY 2025 is expected to provide further support. Notably, high-frequency indicators for the latter half of FY 2024-25 suggest positive momentum (see Annexure I).

The biggest risks for Indian equities are external, particularly from US policy shifts. Any new trade tariffs could trigger further short-term selling from FPIs. Additionally, stronger earnings growth expectations in US equities may act as a drag on Indian markets, as FPIs shift allocations. As of February 24, 2025, the S&P 500 Index is expected to deliver ~16.2% earnings growth (in USD) over the next 12 months, compared to the Nifty50’s expected 13.6% earnings growth, which could tilt foreign inflows toward US markets.

Related Funds

NDIA: The Global X India Nifty 50 ETF (ASX: NDIA) invests in 50 of the largest companies listed in India.