The report identified five pivotal themes expected to drive market dynamics in 2025:
1. Capex Cycle Revival: India’s ongoing multi-year capital expenditure (capex) cycle is set to propel economic growth. With private sector projected costs at a decadal high of ₹55,122 billion, corporate order books across sectors are expanding. While central government and listed corporate spending are likely to grow, state spending may lag. The number of projects has reached levels last seen in 2017, underscoring the significance of this revival.
2. Penetrating Financial Services: The financial services sector showcases diverse subcategories with varying growth trajectories. Narrowing gaps between bank credit growth and deposit growth could ease margin pressures. Both public and private sector banks demonstrate healthy return ratios and capital adequacy levels. Sector valuations remain close to long-term averages, offering value opportunities.
3. Technology: New-Age Service Offerings: The IT services industry anticipates a boost in spending, particularly on cloud services. India is solidifying its position as a global tech hub by expanding into areas like AI, blockchain, and cybersecurity. Generative AI, a key driver, is expected to grow demand 15x between 2022 and 2027.
4. Consumption and Rural Revival: Post-COVID recovery in India’s consumption sector is marked by contrasting trends—premium products perform well, while mass consumption lags. However, rural spending is showing signs of recovery. Family nuclearization, rising from 34% in 2008 to 50% in 2022, alongside the shift from unorganized to organized retail, drives structural demand growth.
5. Healthcare: With rising per capita GDP and an aging population, healthcare spending is on the rise globally. India, as a leading pharmaceutical and vaccine producer, is capitalizing on this trend. Outsourcing and Contract Development and Manufacturing Organizations (CDMOs) present significant growth opportunities, with increased R&D investment driving innovation.
Fixed-income investments stand out amid declining interest rates. With anticipated RBI rate cuts of 50–75 basis points by the end of 2025, longer-duration instruments offer potential stability and attractive returns. The combined Centre and State deficit for FY26 is expected to close near 7%, potentially leading to an India rating upgrade. The 10-year G-Sec yield is projected to trend lower, within the 6.25% to 6.50% range, enhancing fixed-income appeal.
Nilesh Shah, Managing Director of Kotak Mahindra AMC, highlighted, “Market corrections present opportunities to invest in fundamentally strong companies at reasonable valuations. Earnings growth is poised to drive the market, with limited scope for P/E expansion, making it essential to temper return expectations and prioritize sustainable growth. Fixed-income investments now offer competitive returns with reduced risk, particularly in longer durations. Value exists in sectors like private banks, auto, telecom, pharma, and IT.”
Shah also emphasized the impact of increased government spending and the festive season, particularly the upcoming wedding season, as key drivers of consumption and economic growth.
Kotak Mutual Fund’s Market Outlook 2025 underscores the importance of selective, disciplined investing while aligning portfolios to long-term sustainable growth opportunities.
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