Notwithstanding the remarkable performance of the stock market in recent years, the Economic Survey cautioned investors about a meaningful correction in 2025.
“As we move into 2025, the US financial landscape is characterised by high stock market valuations, record corporate profits and extremely optimistic investor sentiment. With the US comprising 75% of the MSCI World Index (as of November 2024), any correction in its market could have profound ripple effects on global markets, including India, underscoring the need for heightened vigilance,” the Economic Survey said.
The Survey noted that elevated valuations and optimistic market sentiment in the US have increased the likelihood of a significant market correction in 2025. Should such a correction occur, it could have a cascading effect on India, particularly given the increased participation of young, relatively new retail investors as they have never experienced a significant and prolonged market correction. Therefore, if one were to take place, its impact on sentiment and spending could be substantial, the Survey said.
The Nifty 50 has historically shown a strong correlation with the S&P 500. An analysis of daily index returns from 2000 to 2024 has revealed that in 22 instances, when the S&P 500 corrected by more than 10%, the Nifty 50 posted a negative return in all but one case, averaging a 10.7% decline.
Conversely, during 51 instances when the Nifty 50 experienced a correction of over 10%, the S&P 500 exhibited positive returns in 13 cases, with an average return of (-)5.5%.
The Survey also highlighted several milestones achieved by domestic capital markets. “On 23 May, 2024, the total market capitalisation of BSE-listed stocks closed above the $5-trillion milestone for the first time,” the survey noted.
The BSE market capitalisation-to-GDP ratio stood at 136% at the end of December 2024, rising significantly over the last decade.
India’s share in global IPO listings surged to 30% in 2024, up from 17% in 2023, making it the leading contributor to primary resource mobilisation globally, the survey said.
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