Month: December 2024

Indian banks’ gross bad loan ratio may rise from a 12-year low if risks emanating from credit quality, interest rates and geopolitics play out, a report published by the central bank on Monday showed.

Gross bad loan ratio is the proportion of bad assets to total loans.

This key measure could rise to 3 per cent by the end of March 2026 from a 12-year low of 2.6 per cent in September 2024 for 46 banks under the so-called baseline scenario, the Reserve Bank of India (RBI) said in the Financial Stability Report. 

The bad loan ratio could rise to 5 per cent and 5.3 per cent under two separate high-risk scenarios, it said.

While the aggregate capital ratios of banks may reduce, no lender will fall short of the minimum capital requirement of 9 per cent even in adverse cases, the RBI said.

The Financial Stability Report, published twice a year by the central bank, includes contributions from all financial sector regulators.

Indian banks’ asset quality has improved over the last few years due to recoveries and write-offs of legacy bad loans, and curtailed growth of bad assets. Banks have also shored up their capital positions.

Over the last year, the RBI has warned the financial sector against “all forms of exuberance”, tightened rules for credit card and personal loans, made it more expensive for non-banking finance companies to borrow from banks and imposed business restrictions on non-compliant lenders.

It also wants lenders to adopt strong risk management and governance frameworks and to raise more capital.

On the whole, banks’ asset quality parameters have improved and their capital levels remain robust, the central bank said.

The Indian financial system is expected to remain sound and vibrant, supported by further improvement in balance sheets and strong buffers, the RBI said.

“Although net interest margins have narrowed, banks’ return on equity and return on assets have improved,” it said.

The balance sheets of non-banking finance companies have strengthened, the RBI said, with stress tests indicating that even under a high-risk scenario, their capital requirements would remain much above the minimum needed level.

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As the 2024 trading year concludes, benchmark indices Sensex and Nifty are set to finish with single-digit returns. So far, Sensex has gained 8.92%, while Nifty has risen by 9.49%. The year saw significant milestones, with Sensex reaching an all-time high of 85,978 and Nifty hitting a record 26,277 on September 27.

Outlook For 2025

Looking ahead to 2025, an average of brokerage targets suggests the market is poised for a strong double-digit return of over 16%, despite ongoing concerns about FII selling, weak earnings, high valuations, and geopolitical issues.

Pankaj Pandey, Research Head at ICICIDirect, is optimistic about the market. He stated, “We are constructive on markets and believe the recent correction provides a good entry point for long-term wealth generation. With a modest ~7% growth expected in Nifty earnings for FY25E (on a high base), we anticipate Nifty to return to double-digit earnings growth, with earnings over FY25-27E projected to grow at a CAGR of 15%.” He noted that key growth drivers would include a pick-up in domestic GDP growth, falling interest rates, and a continued supportive policy environment.

Saurabh Jain, Managing Director & Head of Wealth Solutions at Standard Chartered Bank, India, shared a similar outlook: “As we head into 2025, our base case is a recovery in India’s growth and corporate earnings, supported by increased government spending and a rebound in consumption demand as the RBI begins its policy easing cycle. We believe the macro environment favors risk assets and have raised equities to Overweight in our Foundation allocations, funded by an Underweight in cash. While elevated valuations may limit multiple expansion, earnings growth is expected to drive returns, supporting outperformance in equities relative to cash and bonds. Domestic equities benefit from strong profitability measures like return on equity (ROE), which remains ahead of global peers. Additionally, foreign investor participation in domestic equities remains at a decade-low. Gold continues to be a vital core holding and a hedge against rising geopolitical tensions, inflation, and growth slowdowns.”

Shiv Chanani, Senior Fund Manager – Equity at Baroda BNP Paribas Mutual Fund, emphasized a bottom-up approach for 2025, stating, “After two strong years of market returns, a more selective, bottom-up strategy is likely to be effective. Investors should remain agile in their asset allocation, being mindful of market volatility. Portfolios should include liquidity margins and focus on assets with strong earnings sustainability.”

Narendra Solanki, Head of Fundamental Research at Anand Rathi Shares and Stock Brokers, advised investors to design their portfolios with a balanced risk-to-reward ratio, diversifying across quality large-cap, mid-cap, and small-cap stocks. He recommended rebalancing or adding funds during market dips or opportunities.

Jathin Kaithavalappil, Assistant Vice President at Choice Broking, suggested focusing on high-quality stocks with strong fundamentals, particularly in banking, consumer, and technology sectors. He also recommended selectively adding stocks from defense, pharmaceuticals, and railways, ensuring portfolio balance between growth and defensive sectors.

Will Sensex Cross 90,000 By December 2025?

As 2025 comes to a close, Sensex is expected to end the year with a gain of around 8%. However, global brokerage firms have set more optimistic targets, with one predicting a target of 90,520, while Morgan Stanley has set an even higher target of 93,000.

Morgan Stanley highlights India’s strong earnings, macroeconomic stability, and robust domestic flows as key drivers for this bullish outlook. The firm also believes Dalal Street will be one of the top-performing emerging markets in 2025. “In our base case, we anticipate continued macro stability in India, driven by fiscal consolidation, increased private investment, and a positive gap between real growth and real rates. We also expect strong domestic growth, no recession in the US, and stable oil prices,” the firm noted.

Nifty Target For 2025

Several brokerages have issued their Nifty targets for 2025. Citi forecasts a target of 25,000, Goldman Sachs has set a target of 27,000, BofA predicts 26,500, and Jefferies is aiming for 26,600.

Mahesh Nandurkar from Jefferies commented, “After strong EPS growth and market returns over the last four years, expectations for growth are moderating. EPS growth has slowed to below 10% in FY25, but we expect a 13% growth in FY26/CY25. Domestic flows remain strong, but an increase in equity supply is limiting market returns. Our December 2025 Nifty target of 26,600 suggests a 10% total return.”

Bajaj Broking, using a comprehensive analysis including a bottom-up approach, market seasonality, DII flow, and conventional charting methods, predicts that bulls will dominate the market in 2025, with Nifty potentially reaching 28,700 over the next 12 months.

Stocks To Buy In 2025

For 2025, Motilal Oswal is ‘overweight’ on sectors such as IT, healthcare, BFSI, consumer discretionary, industrials, real estate, and themes like capital markets, EMS, digital e-commerce, and hotels. Their top 10 stock picks reflect these sectors, with high growth potential and strong upside. These stocks are expected to deliver solid returns, making them prime investment opportunities for the year ahead.

Motilal Oswal’s top stock picks for 2025 include: ICICI Bank, HCL Tech, L&T, Zomato, Polycab, Godrej Properties, Nippon Life AMC, IPCA Labs, Lemon Tree Hotels, and PN Gadgil.

Jefferies has selected ICICI Bank, Axis Bank, SBI, Bharti Airtel, JSW Energy, TVS, Coal India, Godrej Properties, and Sun Pharma as their top picks.

In the mid and small-cap space, Prabhudas Lilladher has identified Aster DM Healthcare, Crompton Greaves Consumer, Cyient, DOMS Industries, Jindal Stainless, Lemon Tree Hotels, Safari Industries, and Triveni Turbine as key stocks to watch.

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The real Gross Domestic Product (GDP) growth is expected to recover in the third and fourth quarter of the current financial year on back of pick up in domestic drivers, mainly public consumption and investment, strong service exports and easy financial conditions, the Reserve Bank of India’s (RBI) Financial Stability Report said.

“Despite this recent deceleration, structural growth drivers remain intact. Real GDP growth is expected to recover in Q3 and Q4 of 2024-25,” the report said.

During H1:2024-25, real GDP growth (y-o-y) moderated to 6.0 percent from 8.2 percent and 8.1 percent growth recorded during H1 and H2 of 2023-24, respectively.

India’s GDP growth slumped to its lowest level in seven quarters at 5.4 percent in the second quarter of FY25.

On December 26, Finance Ministry said that India’s economic growth is projected to reach around 6.5 percent in real terms for FY25, supported by strong rural and urban demand, improved capital formation, and robust government spending.

“On the demand side, rural demand remains resilient, as highlighted by the 23.2 percent and 9.8 percent growth in two- and three-wheeler sales and domestic tractor sales, respectively, in October-November 2024. Urban demand is picking up, with passenger vehicle sales registering YoY growth of 13.4 percent in the same period and domestic air passenger traffic witnessing robust growth. Consequently, we expect the economy to grow at around 6.5 percent in real terms in FY25,” the Finance Ministry said in its Monthly Economic Review (MER) for November 2024.

The economy is expected to perform better in the October-March period, following a 5.4 percent GDP growth rate in Q2. “Growth in October-March is likely to be better than in H1. Food price pressures are likely to decline gradually, supported by an optimistic farm sector outlook,” the report noted.

Government capital expenditure is a major growth driver, with increased spending boosting infrastructure projects and capital goods sectors. “There are signs of capital formation growth rebounding early in H2 FY25. The order books for infrastructure and capital goods grew sharply in FY24 and H1 FY25, indicating a pent-up investment impulse that will play out in the quarters ahead,” the report added.

The infrastructure sector is expected to gain traction, with cement, steel, and electricity industries benefiting from post-monsoon demand and government-led initiatives.

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Adani Enterprises Ltd (AEL) announced on Monday its decision to completely exit its 44% stake in Adani Wilmar Ltd (AWL). The stake sale will be executed in two phases: the first involves selling shares to Wilmar International’s subsidiary, Lence Pte Ltd, while the second entails a partial divestment to meet minimum public shareholding requirements.

Adani Enterprises and its wholly-owned subsidiary, Adani Commodities LLP (ACL), have entered into an agreement with Lence Pte Ltd, a fully-owned subsidiary of Wilmar International. Under the agreement, Lence Pte Ltd will acquire up to 31.06% of AWL’s paid-up equity shares through a call or put option mechanism.

Additionally, Adani Enterprises will divest around 13% of its shares in AWL to meet public shareholding norms. Together, these steps will mark Adani Enterprises’ complete exit from its stake in the fast-moving consumer goods (FMCG) business.

As of December 27, 2024, Adani Wilmar had a market capitalisation of Rs 42,785 crore (approximately $5 billion).

Following the announcement, shares of Adani Enterprises surged by 7% to close at Rs 2,585 on Monday. However, Adani Wilmar’s stock declined by 1.81%, settling at Rs 323.25 per share.

In line with the agreement, the nominee directors of Adani Commodities LLP on AWL’s board will step down. Furthermore, the parties have decided to rebrand Adani Wilmar under a new name. Options under consideration include “AWL Limited,” “AWL Agri Business Limited,” or “Fortune Agri Business Limited.” The final name will require approval from the Ministry of Corporate Affairs.

Adani Enterprises has indicated that funds from this stake sale will be channelled into its core business sectors, such as energy, utilities, transport, logistics, and other industrial verticals. This aligns with the company’s strategy to strengthen its position in critical infrastructure areas.

The transaction is subject to regulatory approvals and other customary conditions. Once completed, it will mark a restructuring of the ownership in AWL, which was a joint venture between the Adani Group and Wilmar International.

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The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) benchmark equity indices – the BSE Sensex 30 and the NSE Nifty 50 are all set to the end the calendar year 2024 with notable gains of around 9 per cent each. In the process, the Sensex and the Nifty will be settling with gains for the ninth straight calendar year. 

Historic data shows that the Sensex and the Nifty have been on a winning run since the calendar year 2016. The benchmark indices have trebled during this 9-year period. Way back at the end of the year 2015, the Sensex quoted around 26,000 levels and the Nifty around 7,950 levels. 

In terms of per centage gains, the Sensex and the Nifty delivered their best performance in the years 2017, 2021 and 2023; while the least gains were logged in the year 2016.

Going ahead, what’s in store for the benchmark indices in the calendar year 2025? Will the Sensex and the Nifty extend their winning run to the 10th year in a row? Here’s what the technical charts suggest: 

Nifty Last Close: 23,813 
Upside Potential: 7.9% 
Downside Risk: 15.2% 
Support: 23,570; 23,300; 22,030; 21,515; 21,350 
Resistance: 24,200; 24,300; 24,600 

Off late, the NSE Nifty is seen struggling around its 200-DMA (Daily Moving Average) on the daily chart, which stands at 23,860 levels. The worrying aspect is that the key momentum oscillators are unfavourably placed on the daily and the weekly scale. 

Technically, the Nifty is seen testing support around its 50-WMA (Weekly Moving Average), which stands at 23,570, a key indicator the NSE index has not violated in the last 21 months. As and when, the Nifty breaks down – meaning a weekly close below the 50-WMA; it shall open the doors for further downside. As such, the Nifty may seek support around 23,300 levels; below which a slide towards 22,030; 21,515 and 21,350 levels seems likely. 

In the worst case scenario, the Nifty could slide all the way to 20,200 levels – to fill a run-away gap left between 22,290 – 22,507 levels in early December 2023. This translates into a downside risk of over 15 per cent from present levels.

On the positive front, as long as the Nifty manages to sustain above the 50-WMA on a weekly closing basis, a pull-back from current levels cannot be ruled out. In which case, the Nifty can bounce back to 24,600 levels, with interim resistance visible at 24,200 and 24,300 levels; above which the upside for the NSE benchmark index seems capped around 25,700 levels.

The Nifty will need to trade consistently above 25,700 levels to harbour hopes of the index hitting a new all-time highs in the year 2025. 

Sensex Last Close: 78,700 
Support: 74,500; 72,600; 70,700; 69,000 
Resistance: 82,500; 84,800; 86,700; 88,600 

Even as the BSE Sensex is poised to end the calendar year 2024 near about 9 per cent higher, the BSE benchmark has shaved-off 8.5 per cent from its peak of 85,978. The BSE benchmark was up 19 per cent at its summit in 2024. 

The yearly Fibonacci chart suggests that the Sensex could gyrate in the broad range of 69,000 – 88,600 in the new year 2025. Intermediate support for the BSE Sensex is placed at 74,500, 72,600 and 70,700 levels; whereas, resistance can be expected around 82,500, 84,800 and 86,700 levels. 

In the worst case scenario the Sensex could slide all-the-way to 62,700 levels. On the other hand, break and sustained trade above 88,600 levels; can trigger upside momentum towards 94,700 levels.

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