Synopsis
A recent report indicates that Indian stock markets will likely remain volatile in the near term but are expected to stabilize by late 2025 due to improved domestic consumption and favorable monsoon conditions. Positive FPI flows may follow capital expenditure and tax cuts.Key Takeaways
- Indian stock markets to stabilize by Q4 2025.
- Domestic consumption and normal monsoons are key drivers.
- FPI flows may turn positive due to increased capex and tax cuts.
- Food inflation has decreased significantly.
- Government initiatives are expected to boost consumer demand.
Mumbai, Feb 25 (NationPress) The Indian stock markets are anticipated to experience fluctuations in the short term, but they are expected to stabilise by the conclusion of Q4 2025. This is largely due to a surge in domestic consumption and the favorable impact of normal monsoons, as highlighted in a report released on Tuesday.
The report, titled 'India Strategy Report' by PL Capital-Prabhudas Lilladher, suggests that the effects of various government initiatives and typical monsoons will likely begin to manifest in enhanced consumer demand by Q2 2026.
According to the report, the primary concern for the market, namely FPI flows, is likely to become positive owing to increased capital expenditure, tax reductions, and a revival in consumer demand. Furthermore, the Nifty’s 12-month target is projected to reach 25,689.
Food inflation has peaked, showing a decline from 10.9 percent in October 2024 to 6 percent currently. Additionally, a 25 bps repo rate cut by the RBI and open market operations (OMO) are expected to improve liquidity in the next 3-6 months.
Other encouraging factors include a Rs 1 lakh crore income tax reduction for consumers in India, a boost in religious tourism, and a 17 percent increase in government capital expenditure (including PSU and state allocations).
In its model portfolio, PL Capital is becoming increasingly optimistic about consumer sectors due to an anticipated rise in demand following tax reductions, a decrease in food inflation, and a reduction in the repo rate. The firm has also increased its investment in banks and healthcare.
Despite ongoing uncertainties in global markets, PL Capital is optimistic that India's growth projections for FY26 are considerably more favorable compared to FY25.
The report states, 'As the benefits of the budget begin to show through higher capital expenditures on a low base, along with tax cuts and normal monsoons enhancing consumer demand, we anticipate FPI flows will turn positive.'
India is also expected to remain largely unaffected by any significant negative impacts from US policies, as low crude oil prices, geopolitical stability (especially if the Russia-Ukraine conflict concludes), and increased technology transfer to India will mitigate the costs associated with Trump's tariffs.
According to the report, 'India’s adeptness in navigating tariff discussions, capitalizing on its geopolitical positioning, and realigning supply chains indicates that this period represents a temporary adjustment, not a withdrawal.'
