Anand Shah: Over the past four years, we have witnessed robust investment-led growth, with consumption taking a backseat due to the government’s strong focus on boosting infrastructure and manufacturing. Consumption growth tends to follow investments with a lag.

Looking ahead, a combination of easing interest rates, moderating inflation, a strong kharif and rabi crop, and State and Central government measures to boost rural incomes should support a gradual recovery in consumption. These factors could drive a broader demand recovery by 2025.

While government capex seems to have peaked, there is a clear shift towards private capex. Corporate capex is expected to improve as cash returns on invested capital increase. While investment activity hasn’t yet matched the rise in operating cash flows, improving financial metrics could drive higher corporate spending.

Within corporates, sectors such as manufacturing, utilities and renewables are likely to lead the investment cycle. Major players in the power sector, particularly in renewable energy projects, are already ramping up their capex. Similarly, high utilisation rates in sectors like steel and cement could trigger operating leverage, and the cement sector is likely to see continued consolidation alongside robust expansion plans from key players.

Pratik Gupta: India’s consumption slowdown is close to bottoming out, but the recovery will be slow and earnings expectations for FY25 and FY26 are still overly optimistic in our view. On the positive side, IT hiring seems to be picking up slowly and government capex is likely to accelerate, which should help drive a gradual recovery in consumption. On the negative side, the quality of job creation, in aggregate, has been poor, with incremental employment generated in agriculture (360 bps increase in share of agriculture over 2019-24), resulting in weak overall income growth. At the same time, weak household savings, periodic bouts of high inflation, sharp price hikes taken in a number of consumer categories over FY19-24 and recent squeeze in unsecured lending have exacerbated the ongoing consumption weakness. As such, gradual redressal of some of the cyclical factors will allow a gradual recovery in consumption in FY26.

We believe domestic manufacturing will continue to pick up, but only gradually – helped by gradual recovery in domestic demand, some likely adjustments in the Budget to fix the inverted duty structure for many industries, and lower interest rates. Any weakening of the Rupee will help export-led manufacturing also. The government capex was adversely impacted by the General Election distraction, and it is likely to pick up sharply in the coming months – although, again, this may fall short of official targets. We’ve seen some correction in capital goods’ stocks over the last few months, but near-term valuations still remain quite elevated.  

Sunil Koul: We view this slowdown as cyclical rather than structural, with India’s growth rate falling from above-trend pace of slightly above 7 per cent year-on-year real GDP growth during the post-pandemic period in CY22-23, back towards trend – which we estimate at around 6.5 per cent (average over 2025-30). Within consumption categories, the slowdown in urban consumption was exacerbated by tightening retail credit, following the macro-prudential measures by the RBI late-last year. On the other hand, we are seeing a nascent recovery in rural consumption. Going forward, we expect recovery in rural consumption to sustain in CY25 and urban consumption to recover in H2 2025.

On the capex front, while the Central government capex will sequentially recover in Q1 CY25 as pent-up spending comes through, we expect continued fiscal consolidation by the government towards 4% of GDP over the next two years and government capex spending to average around nominal GDP growth rates going forward. On the private side, we are still waiting for broad-based capex to pick up. While private corporates have de-levered and balance sheets look healthy, we think corporates are likely to wait until there is further clarity regarding tariffs from the new Trump administration. On the other hand, real estate investment cycle has been strong in past few years and we expect real estate cycle to remain buoyant going forward.

Vinay Paharia: It’s difficult to predict the near-term macro trends as they can be quite volatile. Overall consumption had increased sharply post the pandemic, which now seems to be ebbing. However, while it’s difficult to predict near-term trends, medium-to-long-term outlook for consumption growth remains very healthy in India, driven by robust GDP growth outlook over the similar period.

Again, like consumption, manufacturing slowdown was driven by weak government expenditure and private sector holding back some part of capex due to election-related uncertainties in H1FY25. Additionally, industrial and capital goods companies had significantly outperformed in FY24, due to which valuations remained stretched in those sectors. Thus, recent weakness in demand is likely to keep sentiments subdued in these sectors. However, within industrials, companies in the contract manufacturing segment are likely to do well.

Anand: The RBI’s intervention has helped stabilise the rupee (even as major Asian currencies have depreciated against the dollar), but external factors such as the global economic environment and geopolitical tensions will continue to influence its movement.

A stronger rupee could pose challenges for exporters, making Indian goods less competitive. However, government initiatives such as infrastructure development, lower logistics costs, PLI schemes and reduced corporate tax rates for new investments in technology-intensive industries aim to enhance manufacturing competitiveness and offset currency-related challenges.

Sunil: Post the US elections, the macro environment has become more challenging for emerging market (EM) equities in general. We expect headwinds from a stronger dollar, high US 10-year rates, shallower EM easing cycles and likely higher US tariffs on China in 2025. We think Indian equities should be relatively insulated from these macro headwinds compared to many of its EM peers.

Vinay: Globally, most of the developed world is seeing some economic slowdown while simultaneously they are seeing interest rates at multi-year highs. They are grappling with inflation challenges; some of them have currency-related challenges. But India has all the things working for it. We have a stable currency, and our interest rates are also reasonable in the context of what they have been historically. Our central bank has been ahead of the curve in managing the crisis. Fiscal discipline is another big positive. One can think of India like a large-cap country amongst global peers — a very large economy which is also growing fast. Smaller economies can always grow fast, like mid-caps, small-caps, micro-caps; but when a large economy grows fast, it can move the global GDP and India is in that sense the flag-bearer of global GDP growth. So, the long-term macros seem to be very strong.

Anand: Earnings growth for Nifty is expected to moderate in the near term, given global economic uncertainties. That said, India’s long-term growth story remains robust, driven by structural factors such as favourable demographics, digitalisation, infrastructure development and an expanding middle class. Structurally, we expect India Inc to sustain an earnings growth rate of 10-11 per cent, underpinned by these drivers.

Pratik: We expect the headline Nifty earnings growth to be 5 per cent in FY25 and 16 per cent in FY26. If we exclude the oil & gas sector (due to some one-offs), the growth improves to 10 per cent and 17% for FY25 and FY26 respectively. Metals, hospitals and retail sectors are likely to see the highest earnings growth in FY26, while power utilities, chemicals and the auto sector are likely to be earnings growth laggards next year. The main headwind is a further slowdown in global growth and the risk of sharp rupee depreciation which would depend on how the trade/currency wars pan out once Trump takes charge. Given inflation that’s still above the RBI’s target of 4 per cent and the risk of a weaker currency, the scope for sharp rate cuts is limited – we’re expecting only a 25-bp RBI repo rate cut next year. The tailwind is that government capex is picking up again, the worst of the domestic consumption slowdown is likely behind us.

Sunil: We expect India’s GDP growth to decelerate to 6.3 per cent year on year (in 2025), on continued fiscal drag and slower credit growth, which should continue to weigh on consensus EPS expectations. We forecast MSCI India earnings growth at 13 per cent/15 per cent in CY25/26 vs consensus expectations of 16 per cent/15 per cent respectively. So we are below consensus expectations by about 3 percentage points over the next two years.

Vinay: We do not prepare earnings estimates for the index, but do so for companies in our coverage. We are indeed seeing some cuts in estimates for future earnings across the entire spectrum of companies in our universe. The key headwinds are in the form of slowing economic activity largely led by weakness in urban consumption and government capex spending. We think the change in guard in the US government is likely to increase volatility in trade with the nation, lending additional uncertainty. In terms of positives, we expect interest rates to soften in India, which can act as a tailwind for valuations as it can potentially reduce the cost of equity for investors. Additionally, the government welfare schemes are likely to spur some consumption at the bottom of the pyramid.

Anand: India’s long-term growth prospects, supported by structural reforms and a vast consumer market, continue to make it an attractive destination for foreign investors. While recent FII selling appears significant, it represents only a fraction of their overall holdings. The challenge lies in India’s current valuations, which are at a premium compared to EM peers, while earnings growth differentials do not fully justify this gap. As this risk-reward equation shifts, FII flows could return. Maintaining macroeconomic stability, policy consistency and improving ease of doing business will remain key to attracting and retaining foreign portfolio investments (FPIs).

Pratik: In CY24 (till mid-December), FPIs had net sold ₹1,02,000 crore in Indian equities, while DIIs were net buyers worth ₹5,01,640 crore in secondary markets. FPI flows will depend on how the trade/currency wars pan out once the Trump administration takes charge. The consensus view is that global EM funds will not see meaningful inflows until the USD weakens, the timing of which is tough to predict, and until then, FPI flows will remain very muted. Overall, the base case is not for a EM rally next year and that in turn implies FPI flows will remain volatile. DIIs will play an even greater role in our markets next year.

Sunil: The external macro headwinds, coupled with cyclical growth slowdown domestically and high starting valuations, could keep foreign flows weak over the next three-six months. Flows could pick up in latter half of the year as domestic and external environment become more conductive as per our expectations.

Anand: After four years of robust earnings-driven returns, CY25 may present challenges due to global macroeconomic uncertainties, particularly in the US and China. This highlights the importance of bottom-up stock selection. Our portfolio strategy emphasises companies with prudent capital allocation, sustainable earnings growth and improving return on equity (RoE).

Capex-driven sectors such as infrastructure, manufacturing and utilities are likely to benefit from the ongoing investment cycle. Growth in 2025 will likely be capex-led, supported by improving credit availability. Although interest rates may not decline significantly, even a marginal easing could act as a catalyst.

Additionally, improving corporate health and a recovery in formal job creation provide a favourable backdrop for sectors like financial services and pockets of discretionary consumption to perform well.

Pratik:  We believe Indian equities are still not cheap, with the Nifty trading at about 20x March 2026 earnings. India is at about 75 per cent premium to the MSCI EM Index, which is towards the upper end of the historical range. Mid-/small-caps are even more expensive (Nifty Midcap Index is at 31x and SmallCap Index is at 24x), despite their typically weaker business resilience/governance and lower market liquidity which increases the impact cost when buying/selling. Hence, we prefer large-caps in general, while being selective towards mid-caps, with preference towards industry leaders having strong growth prospects.

Given the global uncertainty and a slow recovery in the domestic markets, along with downside risks to earnings and largely elevated multiples in many stocks, we’re advocating a somewhat cautious stance at this stage. We prefer the large private banks, life insurance stocks, pharma/hospital plays, the real estate sector (including REITs), and the large industry incumbents in airlines/telecom. We would avoid consumer discretionary and autos in general, given the risks of earnings downgrades and/or expensive multiples, the oil & gas PSUs, metals and cement plays and the chemicals sector for now. 

Sunil:  While the structural positive case for India over the medium term remains intact, we remain tactically neutral given slowing growth, high starting valuations and a less supportive domestic and external environment in the near term. We expect the market to remain range-bound over the next three-six months, but growth in the second half of 2025 should be better, fuelling our 12-month NIFTY target of 27,000. Beneath the headline index, we think investor focus is likely to lean towards quality companies with strong earnings visibility in the near term. This includes companies with strong balance sheets, high ROEs, high earnings visibility and positive EPS revisions. Over the medium term, our preferred alpha themes include housing, agriculture, defence, affluent or high-end consumption and tourism.

Vinay: We think there is a big multi-year investment opportunity in investing in a diversified portfolio of high-growth and high-quality stocks. Our internal estimates suggest that within the NSE 500 companies, the broad underperformance of these high-growth, high-quality companies is to the tune of 35 per cent in the last 14 months alone. So, that makes us optimistic because such companies have underperformed, despite growing at a faster pace. While the rally in small- and mid-caps may continue, some level of caution is warranted due to concerns related to underlying market dynamics.

We are optimistic on sectors such as healthcare, financials (private sector banks), telecom and information technology. Also, we think that large-cap stocks are reasonably valued and present good investment opportunity.

Within corporates, sectors such as manufacturing, utilities and renewables are likely to lead the investment cycle. Major players in the power sector, particularly in renewable energy projects, are already ramping up their capexAnand ShahHead – PMS and AIF investments, ICICI Pru AMC

We expect the headline Nifty earnings growth to be 5 per cent in FY25 and 16 per cent in FY26. If we exclude the oil & gas sector (due to some one-offs), the growth improves to 10 per cent and 17 per cent for FY25 and FY26 respectivelyPratik GuptaCEO & Co-Head, Kotak Institutional Equities

Post the US elections, the macro environment has become more challenging for emerging market equities in general. We expect headwinds from a stronger dollar, high US 10-year rates, shallower EM easing cycles and likely higher US tariffs on China in 2025Sunil KoulGlobal Emerging Market Equity Strategist, Goldman Sachs

We think there is a big multi-year investment opportunity in investing in a diversified portfolio of high-growth and high-quality stocks. We are optimistic on sectors such as healthcare, financials (private sector banks), telecom and information technologyVinay PahariaCIO, PGIM India Mutual Fund