Market outlook for 2025 and key sectors to invest now? Insights from Gurpreet Sidana, CEO, Religare Broking

As the Indian stock markets grapple with high volatility, the benchmark BSE Sensex has dropped nearly 9% from its 52-week high, while the BSE Midcap and Smallcap indices have shed 7% and 5%, respectively. With 2025 on the horizon, investors are shifting their focus to the opportunities and challenges the New Year might bring.

In an interview with Business Today, Gurpreet Sidana, CEO of Religare Broking, delved into the factors shaping market dynamics. Sidana provided a comprehensive outlook on the impact of global events like geopolitical tensions and US monetary policies on domestic challenges such as inflation and tight financial conditions. He also highlighted growth prospects in key sectors like banking, cement and renewable energy, while underscoring the rising influence of retail investors in driving market trends. Edited excerpts:

Which global economic trends have the most significant impact on Indian investments, and how can investors mitigate or reduce associated risks?

Several global factors are posing challenges for Indian investors. Geopolitical uncertainties, including conflicts in Ukraine and the Middle East, have increased market volatility and disrupted supply chains. Global monetary policies like the US Federal Reserve interest rate decisions influence global liquidity and capital flows into India. Fluctuations in key commodities like metals and agricultural products also impact inflation and economic stability. Investors should adopt a balanced approach, focus on high-growth sectors, and monitor macroeconomic developments that could affect market performance.

Market outlook for 2025 and key sectors to invest in?

Economic growth is anticipated to slow down in 2025 due to persistent inflation and delays in public spending linked to elections. Additionally, tight financing conditions are expected to pose more challenges. However, potential rate cuts in 2025 could provide some relief, particularly if food inflation moderates.

Despite these challenges, several sectors offer promising opportunities for investors.

The banking sector is well-positioned to benefit from robust balance sheets, improved NPA management, and a potential rate-cut cycle. The cement sector is likely to experience growth driven by increased government spending on infrastructure and housing, boosting demand. The pharmaceutical sector stands to gain from rising global demand for generics and biosimilars, along with growing healthcare awareness in India. Moreover, the healthcare sector presents significant prospects as healthcare services expand into Tier-2 and Tier-3 cities, addressing the increasing need for quality care.

How do you see global monetary policies, such as interest rate decisions by the US Federal Reserve, influencing Indian equity markets?

Global monetary policies significantly influence Indian equity markets by shaping investor sentiment, capital flows and currency stability> All of which directly affect market performance. Interest rate decisions, particularly rate cuts, typically attract foreign investments, leading to a rise in stock prices. However, the impact varies across sectors. For example, IT companies often benefit from lower rates, while export-driven industries such as textiles and manufacturing may face headwinds due to increased costs for foreign buyers. Investors must stay vigilant and closely track these developments to navigate market complexities effectively.

How do you view the role of domestic retail investors in shaping market trends compared to institutional players?

Domestic retail investors are emerging as key drivers of India’s equity market with their influence poised to grow further in 2025. Factors like rising financial literacy, digital platforms and attractive equity returns have fuelled participation with demat accounts surpassing 18.2 crore as of November 2024. Retail inflows, particularly through SIPs averaging Rs 25,000 crore monthly, provide consistent support to the market, while cushioning volatility from FII outflows. These investors are shaping trends in small and mid-cap stocks and emerging sectors like EVs and renewable energy. While institutional players ensure liquidity, the optimism and steady contributions of retail investors are acting as a powerful growth catalyst, making India’s equity market more inclusive and resilient.

Which sectors in the Indian equity market hold the most promise for growth over the next decade, and why?

Predicting future growth is challenging due to rapid changes, but key sectors likely to perform well in the coming years include:

• Renewable Energy: With a global push for clean energy, government policies, and corporate adoption of green solutions, this sector is set for significant growth, driven by India’s 500 GW renewable energy target by 2030.
• Infrastructure: Rising logistics costs in India have led to increased government investments in infrastructure, ensuring strong growth and order inflows for infrastructure companies.
• Pharma: Driven by rising global demand for generics, biosimilars, and expanding healthcare services in India, the pharma sector is well-positioned for growth, particularly in Tier-2 and Tier-3 cities.

What are the key factors that you prioritise when identifying emerging investment opportunities in the Indian market?

We identify emerging investment opportunities in India through a top-down approach, focusing on high-growth sectors with strong policy support. Within these, we prioritise companies with strong leadership, solid financials, and the ability to capitalise on favourable market dynamics. Valuation is key, as we aim to invest at reasonable prices to maximise returns.

Additionally, we explore contrarian investments in sectors facing challenges but showing signs of recovery. These involve sectors facing challenges such as overcapacity, supply-demand mismatches or heightened competition. Businesses in such sectors, trading below intrinsic value due to temporary headwinds but showing signs of recovery, present compelling opportunities.

This balanced strategy helps us find investments with strong fundamentals, attractive risk-reward ratios, and long-term potential.

How do macroeconomic indicators, such as GDP growth and inflation, influence your sector allocation strategies?

Macroeconomic indicators like GDP growth and inflation shape our sector allocation strategies. We align with economic cycles: during strong GDP growth, we favour cyclical sectors like infrastructure, financials, and consumer discretionary. In slower growth phases, we focus on defensive sectors like healthcare, utilities and consumer staples. Inflation dynamics also influence our approach — during high inflation, we prioritise sectors like energy, commodities, and staples that can absorb rising costs while avoiding vulnerable industries. In low inflation periods, we favour rate-sensitive sectors like real estate and banking.

What is your short- to medium-term outlook for the Indian equity market?

Being one of the fastest-growing economies with solid macroeconomic fundamentals and low corporate debt levels, India continues to be an attractive market with the potential for healthy long-term returns. The medium-term outlook is bolstered by strong domestic demand, supportive government policies and infrastructure development. 

However, in the short term elevated valuations in small and mid-cap segments warrant caution as they could cap upside potential and heighten the risk of market corrections.

Despite these near-term concerns, India’s broader growth narrative remains compelling. Our focus remains on sectors and companies with strong fundamentals, reasonable valuations and the ability to withstand market volatility.