Marina Wealth Yearly Update – Jan 2025
Reading Between The Lines!
We would like to wish all our clients and our readers a very Happy New Year with best wishes for a healthy and prosperous 2025! The year 2024 was an action-packed year with elections and geopolitical tensions dominating the headlines. Let us take a look at how the year unfolded and what we can expect in 2025 and be prepared for it.
2024 Trends in the Indian Economy and Financial Markets
The Indian stock markets had a positive 2024, with the various popular indices providing the below mentioned returns
| Index Name | Closing Value | Opening Value | Change | Annual Returns |
|---|---|---|---|---|
| Nifty 500 | 22375 | 19459 | 2916 | 15% |
| Nifty 50 | 23644 | 21741 | 1903 | 9% |
| Nifty Midcap 150 | 21141 | 17174 | 3967 | 23% |
| Nifty Smallcap 250 | 17752 | 14129 | 3623 | 26% |
But what is fascinating is not the obvious data (market returns) but their underlying implications.
A small anecdote from a short detective story starring Sherlock Holmes, written 100 years back, explains very well the importance of observing facts and drawing inferences.
In the story titled ‘Silver Blaze,’ he investigates the loss of a racing horse. Holmes visits the stable and carries out his own investigation. He interviews the witnesses and goes through the yard. As Holmes is leaving, the Scotland Yard Inspector Gregory is keen to get Holmes’s inputs, and the conversation goes as follows:
“Inspector Gregory: Is there any point to which you would like to draw my attention?
Holmes: To the curious incident of the dog in the night-time.
Inspector Gregory: But the dog did nothing in the night time.
Holmes: That was the curious incident!!“
The stable did have a dog for security purposes. But the dog did not bark (obvious fact). From that, Holmes concluded that no stranger had entered the stable and an insider was involved (inference).
Similarly, let us look at some interesting headlines from the Indian markets and economy and the inference for us as investors.
- 2024 is the 9 th consecutive year of positive returns for the Nifty Index—the large-cap Nifty Index gave 9% returns in 2024. What is truly remarkable is that it is the 9 th year in a row where we have had positive returns The last time we had a negative close on the index was in 2015.
Inference: What this means is that an entire generation of investors haven’t seen meaningful corrections, and they expect consistent yearly returns from equity. Seasoned investors will know that equity markets can’t give consistent returns like debt. Volatility is the inherent nature of the asset class and the lack of it over long periods of time should be keenly looked into. Investors who are aware of these trends can prepare their portfolios and, more importantly, manage their return expectations accordingly.
- Market Leadership kept changing— Within the overall market, we saw lots of variations in returns. In 2024, a large online food delivery company gave 125% returns while a leading paint company fell in value by 33%. Another example, a leading FMCG company which gave 30% returns in 2023, but ended 2024 with a negative 20% returns.
Inference: Merely chasing past performers is very risky strategy in stock investing. It’s close to impossible to predict which segment of the market will lead in 2025. For investors, a broadly diversified portfolio of funds across different investment styles outperforms the markets with lower volatility over long periods of time.
- Gold has outperformed equities in 2024—Gold as an asset class had a great year with returns of 25%, outperforming equities. Strong central bank buying is also giving support.
Inference: High gold prices have increased the asset value for Indian families, as most families have invested in gold in different forms. Gold continues to be a strong countercyclical asset that has given strong returns over time. Multi Asset funds are an interesting investment choice to take exposure to Gold with attractive taxation.
- Total corporate R&D spending in India was 7 billion USD last year, which is less than any of the top 15 R&D spenders globally—firms like Alphabet spent 45 billion USD last year on research, Samsung spent 25 billion USD, etc. Investments in R&D by Indian firms are the lowest amongst large countries.
Inference: Globally, firms that have invested in R&D have seen outsized returns (Nvidia, Tesla, Alphabet, Nova Nordisk, etc., to name a few). In India, this is sorely lacking, barring a few names. As investors, a small allocation to such companies that invest in innovation may be helpful in the long run. There are few funds which specifically invest in innovative companies in the Indian context and can also provide outsized returns but with higher volatility.
- Remarkable stability in oil prices—Brent crude oil was trading at $75 a barrel on Jan 24, and it ended the year at $75 a barrel! Oil prices remained remarkably stable, with a maximum of only $90 briefly before reverting to the average prices, in spite of geo- political tensions in the middle-east.
Inference: The fact that crude prices have remained very stable this year has definitely helped to keep the inflation in check, but also highlights the weakening demand situation across the globe. If this assessment is right, then we may see accelerated reduction in interest rates by the Central Banks of the World. As investors, it would be good to look at debt funds or corporate fixed deposits to lock in rates at this juncture.
” Fun fact 1: The best-performing markets in 2024 were Pakistan and Argentina. The Pakistan stock markets gave 80% returns in 2024, handsomely outperforming established markets. “
Looking Forward to 2025
Making short-term predictions are pointless. For example, the US equity markets had a bumper 2024. But none of the large broking houses had predicted the same.
As always, we believe markets are to be looked at from the three lenses of valuations, earnings, and liquidity.
Valuations – While large caps are trading at long-term valuations, small and mid-caps are trading at much higher historical valuations.
For example, in 2024, the Nifty Midcap PE expanded by 60% from 27 to 44. While earnings growth of the companies and to some extent high liquidity has propelled this, we need sustained earnings growth to retain these valuations. While SIPs in Mid Cap and Small Cap funds can be continued, one time investments in these categories needs to be staggered over a period of time.
Earnings—In 2024, there was a definite slowdown in corporate earnings. On a high base, firms delivered single-digit earnings growth in the last two quarters. The sustainability of earnings growth or lack of it, is a risk for the markets.
Liquidity—Domestic institutions and investors have provided liquidity to the markets by pumping in close to USD56 billion in the last year. Foreign Institutional investors have made negligible investments in 2024.
Global interest rates will drive foreign investor flows in 2025. If the rate cuts in the USA accelerates, we may see more money flowing to India in 2025.
” Fun Fact 2: Diamonds have fared badly as an investment. Their prices have stagnated, and the last 20-year returns are zero! Lab Grown Diamonds are a big threat to the natural ones! “
Way Ahead for Us as Investors
The long-term prospects for Indian markets remain intact. Rising domestic income, many new companies getting into listed space, as well as strong rural consumption will drive earnings in the long run. As investors, we should focus on our behaviour by moderating return expectations (after 3-4 years of bull run) and embracing volatility. We should continue to invest consistently (as these are great markets for SIPs), and maintain a diversified investment portfolio across asset classes.
Thanks so much for partnering with us, and we look forward to working together with you in 2025 and beyond!.
