Q1FY25: Earnings & Economic Outlook

India's economic resilience has outperformed other economies, as evidenced by much controlled inflation, revised upward GDP targets, record reserves, strong tax collections and fiscal discipline. Meanwhile, the markets continue to hit record highs, leading investors to question whether a market correction is imminent or if robust earnings and future growth prospects will justify the elevated valuations. Mandar Wagh examines Q1FY25 financial performances and key developments to provide insights into the future direction of the market

India's divergent growth trajectory compared to other emerging markets and the world's major economies is now a well-known phenomenon. FY24 has truly been a standout year for the Indian stock market! The BSE Sensex and Nifty 50 have delivered impressive returns of around 25-28 per cent over the period. The overarching investor optimism was evident across both the broader markets and on the sectoral fronts. Consequently, India's market capitalisation has soared to USD 5 trillion, making it the fifth-largest in the world. The market adeptly managed the turmoil triggered by fears of a potential market bubble burst, swiftly recovering and rebounding with resilience.

Although the Indian equity valuations remain relatively high, experts believe this alone is unlikely to derail the bull market, provided they are supported by robust growth prospects in a global environment of subdued growth. Therefore, all eyes are on the ongoing Q1FY25 performances of the Indian companies, as these will provide key insights for investors in forecasting both the market's future outlook and individual company prospects. Let's examine the key macroeconomic factors that will significantly influence the economic environment and investment decisions, and then analyse sectoral and company-specific performances to gain a clearer understanding of the current developments.

Comprehensive Economic Outlook

Inflation and Interest Rates-At the outset of FY24, the Reserve Bank of India (RBI) was focused on bringing down high inflation levels within its tolerance band of 2-6 per cent. To achieve this, the RBI adopted a cautious approach to interest rates, maintaining the repo rate at 6.5 per cent. This strategy aimed to strike a balance between fostering economic growth and controlling inflation, thus supporting consumer spending and business investments while ensuring price stability.