It has been a roller-coaster ride for investors in Indian markets in 2024. The benchmark index, Nifty 50, was in a gravity-defying run till the end of September, taking the index to lifetime peak above 26,200. Speculative activity was rampant in both the cash and derivatives market, taking stock market turnover to record highs in the first half of the year. But a bevy of factors — such as the change in leadership in the US, indication of a shallow rate-cut cycle in the US and other advanced economies, foreign investors bargain hunting in beaten-down Chinese equities and slowing corporate profitability in India — have made the Nifty50 decline almost 10 per cent since the September peak.

Though the index is still around 9 per cent higher this year, the correction has helped restore some sanity to market sentiment. The deep declines in some of the mid- and small-cap stocks would have helped warn investors about the inherent risks in stocks. The number of new investors has recorded a sharp surge during the Covid-induced lockdowns, growing from 3.1 crore in FY20 to 10.7 crore by the end of November this year. The trouble is that many of these investors, with limited capital, have not faced a serious bear market. These individual investors have been steadily increasing their participation in the last four years and now account for 35 per cent of cash trading and 34 per cent of equity options trading. Activity in riskier segments of the market such as penny stocks, stocks on the SME platform and initial public offerings has been surging, owing to these investors.

The market correction has helped tame this frenzy somewhat with cash and derivatives turnover down around 30 per cent since the peak in June 2024. Measures by the SEBI such as increasing F&O lot sizes, collecting upfront premiums, curbing weekly derivative contracts, intra-day monitoring of positions and limits and higher disclosures in SME IPOs have also helped check rampant speculation. The volatility is, however, likely to continue in 2025 since market valuation remains pricey, especially in the small and mid-cap categories. Corporate profitability will remain under pressure due to the elevated cost of financing, inflation in input prices and moderation in demand. Meanwhile, the policies adopted by US President-elect Trump are likely to disrupt global trade and cause turbulence in currency markets. The impact of these policies on Indian exporters, specifically information technology companies, will be watched.

In domestic markets, tight financing conditions along with a leash on government capital expenditure will negatively impact demand and capex by India Inc. While foreign portfolio investors turned net buyers of Indian equities in December, these inflows could turn erratic if the rupee continues to weaken. Investors need to moderate their return expectations from stocks in the coming year. SEBI should continue its awareness campaign to warn investors against sheer speculation.