Improved earnings of Indian corporates set to drive returns in 2025: Report

Indian corporates are expected to witness an improved earnings in upcoming quarter which will drive in retuns in the new year, stated the Mirae Asset Mutual Funds stated in its Annual Market Outlook 2025 report.

However, the report highlighted that despite higher valuations at the start of the year, equities did well with mid and small caps delivering double digit returns.

It added that the stocks are still the favorite investment choice in the markets because they have the potential for good returns, but it's important to have a mix of different types of investments (stocks, bonds, etc.) to reduce risk.

The report added that India's medium to long term outlook remains robust driven by strong macro fundamentals deleveraged corporate balance sheets, robust asset quality, fiscal discipline, favourable demographics, digitization, rising income levels, etc.

Household debt levels are also reasonable compared to global standards. India's aggregate debt to GDP is lower than in 2010, while it has risen globally, the annual market report added.

"We remain constructive on equities from a medium-term perspective driven by strong profitability and free cash flows. Earnings growth may be a key driver of returns in 2025.

Given that valuations are trading at a premium and there is froth in certain segments of the market, bottom up stock selection will be important," the report added.

On the Sectoral front, the report expressed its confidence, adding that it remain constructive on Banking & Financial Services given the reasonable valuations and higher return ratios - ROE (Return on Equity) and ROA (Return on Assets).

"We are also hopeful of revival in consumption and positive on manufacturing given the Government's thrust and China+1 strategy," the report added.

Year 2024 was a year of elections with more than half of world's economy by GDP and population undergoing elections including India and US.

While India is broadly seeing policy continuity, it would be interesting to watch out for policies adopted by the new administration in US particularly on trade, immigration, deregulation, taxes and government expenditure.

This will have a bearing on trade and financial markets globally, the report added.

Indian capital markets saw a record surge in primary equity issuances while domestic investors continued to be big buyers in secondary market.

Foreign Portfolio Investors (FPI), on the other hand, have remained on the side lines owing to their discomfort on higher valuations.

Any significant correction in Indian equities may lead to Foreign Portfolio Investor (FPI) inflows going ahead, the report added.