Am back on equity investing blogging: Current Equity market outlook for medium term - 2025 & ahead

Am so glad to be back to my passion of equity market investment related blogging .  I had started blogging  in 2011 but stopped it after my big accident in 2017 .  I am reviving the same after a gap of 7 years now , using my initial blogging platform .  Unfortunately , It doesn't have my last 3 years blogs(2015 to 2017) as I had migrated to another platform with my own domain (which expired few years back due to non usage).  I am re-starting my blogging with a very interesting and relevant topic( a big family drawing room as well as board room discussion topic today ) -  Current equity market Outlook for Medium term - 2025 & ahead .  

Blog site objective: I always had the passion for carefully studying and deploying  sound investing principles & methods of key global equity investing gurus(like Warren  Buffet , Benjamin Graham , Charlie Munger, Philip Fisher, Peter Lynch etc) to create wealth in a long term , safe & sustainable manner . My original objectives for starting this blog site was to guide & help retail investors  to invest in Indian equity markets to create wealth in a disciplined , safe & sustainable manner with a long term perspective .  

                  Current equity market Outlook for Medium term - 2025 & ahead .  

I would say that we  are sitting at an interesting juncture today when the global economies and the equity markets are seeing unprecedented volatality  due to geopoltical uncertainties and unpredictable trade policies of few major nations like US & China . Where do we go from here ? Do we see continuation of volatality and dips in the market ?  Should we invest now or should we wait till volatality goes down ?  Has the market bottomed out ?  These are the questions in minds of lot of investors - retail as well as institutional investors who are waiting in the wings for volatality to go down and markets to stabalize , before they start investing .

My views are a bit different here . Following are the views...

- Its futile and impossible to predict the market in short term . Market continues to surprise everybody including seasoned investor gurus . Hence perfectly timing the market & waiting for it to bottom out  would be futile & impossible . 

-  My thoughts are that Indian equity markets(especially large caps)  are in the last stages of bottoming out . The last few days of  markets have also corraborated on the same by going up or staying flat . There are some sound reasons for my hypothesis which has a high probablty of being true ...

• Improving Geopoltical situation - The Goepoltical situation is improving with 2 wars (Israel - Hamas and Russia - Ukraine) at its final stages under new adminstration in US . Israel - Hamas are already under the first ceasefire with early April 2025 as expiry date . By then , they could be signing off the permanent cease fire most probably , though it will be biased towards Israel  . Russia - Ukraine war could be over in few months with an uncomfortable cease-fire in the favor of Russia/ Putin as Zelensky(Unkraine) doesn't have much bargaining power with US halting its military aid and well as intelligence sharing . Ending of these wars( though under uncomfortable cease fires & deals) will bring in lots of goodness to global economies as well as markets with uncertainties coming down and oil prices coming down significantly .

• Trump tariff related antics coming to an end and getting discounted by markets - This has been a big root cause of market volatality and dips in last few months . However all the         major Tarriff related announcements including Canada , Mexico at 25% tariff , China at total 20% tariff , tariffs on EU , India and other countries have already come in by last week and  opposite parties like China, Canada etc have already announced reverse tarifffs too . So most of  the trade war related rhetoric has already been discounted by markets . In fact , some good news might come in  as Trump has again paused some tariffs on Canada and Mexico . China' s tariff responses could play a role in taming the Unpredictable(Trump) too.

• Gas prices coming down since last few months due to various factors ($67 per barrel from $ 86 per barrel - >20% reduction) . This is going down due to better Geopoltical/ wars situation , US increasing its gas/ oil production to increase its reserves , slowdown in developed world like EU & China . This will have salutary effects on big oil importers like India in terms of trade deficit reduction , stronger INR exchange prices , reduced inflation , reduced RBI rates etc 

• Dollar upvaluation and INR devaluation coming to an end - USD Index which went up to 110 in last many months , due to various reasons like Trump tariffs , Geopoltical situation/ wars , attractive US 10  years treasury bond rates etc has started coming down. Its at 104 now. INR was going down due to above reasons and FIIs(Foreign Institutional investors)were selling off in India to move their money to safer heavens in US . This exchange rate devaluation has slowed down  or halted now . In  fact , INR has upvalued by 0.5% in last few weeks( from 87.62 to 87.12 per USD). In fact , its in the interest of US to keep USD down so that their exports dont get negatively impacted .  These trends will be positive for India as strong and non devaluing INR is good for their(FII) returns and make Indian equity more attractive.

• False naratives around Indian markets over-valuation from media & "experts"despite recent correction  - While some  pockets of Indian markets , especially small caps amd mid caps are clearly over-valued , large caps(Nifty 50 companies) are fairly valued or under-valued by all significant parameters - PE trailing ratios , PE forward ratios as well as Warren Buffet  market Valuation indicator(market cap / GDP ratio)  . Following are the 4 sub-bullets     

1. Indian market cap is at 3.99 Trillion(as per Bloomberg latest data), already plunging by 18.33       % YTD( highest followed by Zimbabwe @18%). In contrast US , china and Japan recorded 2-3   % gains YTD. Even countries in recession like Canada , UK & France have showed 7 to 10%       gains YTD
2. As per market cap / GDP ratio (Warren Buffet indicator)we are fairly valued or undervalued as       per reliable data sources . India market cap is at $3.99 Tril(Bloomberg data on 7th March). GDP    estimates vary as per different sources . So , the Warren ratio as per the GDP estimates of              various sources is 102% as per our CEA (Chief Economic advisor 's GDP estimates) , 93.4( as     per  IMF current GDP data) , 105%(based on world bank 2023 GDP estimates adjusted                 with 2024 growth). As per Warren Buffet standards , this ratios are pretty much fairly valued   or bit undervalued (93% to 105%). In contrast to these data from reliable sources , media                and Investment banking / brokerage related experts are making incorrect & scaring                      headlines of Warren indicator  at 120% to 147%( Famed names  like CMIE , Buisness standard     Business Today and ESI -  Economic  Survey of India) . Market cap/ GDP ratio was                      at 140% in recent  times in Sep 2024 (source – Guru focus) but has reduced significantly ,            especially for large caps since then. By the way , US Market cap / GDP is at 153% today,  when its GDP  growth rate has been 2 to 3%  against India's 7 to 8% , but their experts still dont talk much about  Over-valuation 
3.  As per PE trailing ratios , Indian markets are at the lowest after Covid days at slightly below        20 last week . Last 10 years PE average was 23.5 and last 18 years it was 21.8 . Hence we are        sitting  at a discount of 8 to 15% with respect to long term averages 
4. As per PE 1 year Forward ratios , Indian markets are at the lowest after Covid days at 16.2 last       week . Last 10 years PE average is 20.4 . Hence we are sitting at a discount of 20%(highest        since Covid days) 

• False narratives on Indian economy slowdown -  There has been a lot of narratives ( seems to be herd mentality) around so called " Indian economy slow down" and "corporate earnings slow down"  . So called "experts" & media who influence the investing community through their narratives ignore the fact that this slow down for few quarters this year was not a structural and fundamental slowdown but a seasonal one induced because of  elections in Q1 & Q2  of this Fiscal quarter( elections were in  Q1 in April to June). This led to significant impact on Government capex & other expenditures for 2 quarters ,which in turn had negative impact on private capex and earnings growth too, Busineses ( especially export oriented) also got impacted because of geopoltical tensions and developed ecenomies slow down(EU , US , Japan etc). However, these are things of the past ( especially election related slow down) . The GDP growth should show up good numbers (7-8%) Q1 of FY26 onwards(April onwards) because of favourable base effect (Q1 of FY25 having elections related slow down) & favorable budget. 

• Growth green shoots already coming in but ignored by market participants(sub-bullets) 

1.  In fact , good news has already started coming with SBI research coming out with 7.6% GDP projected growth rate for current Quarter(Q4 of FY 25)
2.  HSBI Flash India composite PMI output Index has shown strong numbers in Feb @60.6(more than 50  indicates growth) . Feb composite PMI is the fastest in last 7 months.
3. Consensus Nifty 50 Earnings growth for FY26 is quite optimistic at 18.3% instead of an         historical average of 15% Earnings growth .

• Size and speed matters - India still the fastest growing  major economy in the world and Foreign investors(FIIs) don't have too many choices .  Following are the sub-bullets 

1.  Globally , India is still the fastest growing economy with expected GDP growth rates             returning back to 7-8% in 2025 onwards (I would gun for 8% cause of base effect of 2024           election induced slower economy ).With inflation of about 4.5%, this could mean a nominal         growth rate of  about 12% or more (nominal GDP is Real GDP plus inflation). 
2. India is the 5th largest economy today , contributing to about 4% of world economy . Its goimg    to beat Japan this year(2025) and Germany by 2027( as per IMF estimations) to become the 3rd largest ecenomy .  
3. China , the second largest economy grew at 2.8 %( Real rate) and 3% nominal                            rate(practically no inflation)
4. US grew at 2.3% in 2024 and EU is almost in recession with almost nil growth rate 
5. Can somebody afford to ignore this size of economy growing at the fastest speed?? ( Size and speed matters)
6. Lets not forget that Indian retail investors and Domestic Insititutional investors(DIIs)/ mutual funds have been conistently pouring > 30K crore Rs every month through SIPs and other investments and have beome an equal force as FIIs to reckon with and they have played a key role in keeping Indian markets resilient/

 Because of these 8 big reasons(bullets) , I think this is one of the best time to bet on strong and resilient Indian economy and go for the equity investments in staggered manner in next few months , starting today . My idol Warren says " Be fearful when others are greedy and be greedy when others are  fearful"  .  I guess , its time to be greedy in a selective and disciplined manner . This year is going to be the stock picker year and hence go for high quality & growth businesses with strong moats/ competive advantages , run by quality managements , available at attractive prices/valuations  . I would recommend resticting ourselves to large caps , mainly cause of valuation related reasons . With the Nifty 50 dipping by 15% from peaks , most of these attractive and quality businesse would be available at great  prices. I would also advice you to invest in Gold ETF funds(electronic gold) for atleast 10% as its the best insurance against blackswan events / wars and uncertainties . It will help you to cope up in extreme volatile situations as well as sudden liquidity requirements without selling equity at low prices . And avoid leverage for equity investing always 

 When it comes to NIFTY 50 targets , one should never venture into target predictions cause of market volatality and unprectable nature in short & medium term .  However , historically NIFTY 50 & sensex 100 has given about 14% CAGR returns(15% plus including dividends). As the market is fairly valued (as per Warren indicator) or undervalued ( as per PE trailing and forward ratios)now cause of panic and doom sentiments , I would like to shoot for 20% or more upside for NIFTY 50 in next 12 months from current levels. More attractive sectors as per my analysis /perception are BFSI, Auto , Infra , capital goods, power , defence ,  Pharma/ heathcare & IT/ Telecom  .   In long and medium term , there is no reason why NIFTY 50 won't continue to give its historical 15% returns (doubling your investment every 5 years).  With good quality portfolio , you can always expect to beat the market by 4-5% or more(Alpha) which will  double your investments every 4 years & thats quite decent by all standards  . If you dont want to take the risk of picking up the right busineses / stocks , you could invest through index funds too , which is safe and low cost way of investing ..

Thanks and happy investing ...