Five key factors to watch for in 2025

Bye bye 2024, welcome 2025!

The year 2024, which began on a confident note, is leaving investors at a crossroads at close, with many complex issues facing them.

Nifty 50 scaled an all-time high of 26,216 in September and took market-cap of Indian companies to cross $5 trillion for the first time in history but since then it has faltered due to both global and domestic triggers.

Regime change in the US, slowdown in high-frequency indicators, both domestic and global, downtrend in earning momentum in India Inc, aggressive selling by foreign portfolio investors and tactical rise of China vs India were some of the headwinds in 2024.

Crucial factors

Here are five crucial factors that will shape the domestic markets in the New Year.

Trump Policies: All eyes are on the new administration of US president-elect Donald Trump that is likely to assume office on January 20, 2025. Trump has already been talking tough on tariffs; the President-elect has reiterated his intention to impose reciprocal tariffs in retaliation for the high tariff imposed by India on import of certain American products.

Deregulation policy, especially on environmental front, immigration policy (H1-B visa) will also be monitored.

Budget 2025: All eyes will be on the Finance Minister Nirmala Sitharaman, who will be presenting her eighth consecutive Budget on February 1, 2025. Pump-priming is expected by the government through various incentives and tax cuts, to revive the economy, especially in rural areas. There are already reports that the Budget is likely to cut income tax for individuals, taking the exemption limit higher.

3 key central banks: All eyes will be on three central banks – of Japan, India and the US – and their rate movement. Japan wants to end decades of negative interest rate. The Bank of Japan had raised interest rates for the first time since 2007 on March 19, from negative 0.1 per cent to 0.1 per cent and when it again hiked the rate to 0.25 per cent, in July, Japanese market tanked on negative sentiments among global investors as well due to unwinding of yen-carry trade. Similarly, the US Fed’s dovish-hawkish-dovish stance is likely to have a wider impact on the global economy.

There are expectations that the RBI might cut rate in its February meeting to boost slackening credit growth.

Monsoon activity: Since a vast portion of India’s population is still in rural regions and depends on agricultural income, the progress of monsoon is key. Though possibility of El Nino is low in 2025, the focus will be on distribution of rains.

Bangladesh: Tensions over Israel-Hamas and Russia-Ukraine will be closely monitored. Any escalation on intensity will impact global sentiment. Added to this, India faces trouble from neighbour, Bangladesh. This can impact trade and business in select pockets such as power and textiles.

Already experts are advising investors to remain cautious in 2025.

JP Morgan has said the global macroeconomic landscape for 2025 should become more fluid as markets face increasing complexity. The evolution of the business cycle will be driven by interaction between macro dynamics and monetary policy, with added uncertainty from potential changes in policies from the new US administration. Technological innovation and the broadening of the AI cycle will remain an important driver across markets, with monetisation becoming a greater focus in the coming quarters.

“This approach warrants that investors should keep an open mind and a flexible strategy to investing.”

This holds true for Indian investors too.