UBS Predicts Low-Teen Upside for Nifty (NSEI) by March 2025; Advises Caution on Small, Midcap Investments

• The Indian stock market is witnessing a sharp correction with the Nifty 50 index dropping more than 4% from its record high.
• Factors such as sustained foreign capital outflows, muted Q4 corporate earnings and general election jitters are impacting market sentiment.
• Despite the current downturn, analysts predict the market will offer buy-on-dip opportunities, with a low-teen upside expected for the Nifty index by March 2025.

Amidst a sharp correction in the Indian stock market, analysts predict buy-on-dip opportunities and a positive outlook for the Nifty index by 2025.

Market Correction and Forecast

The Indian stock market is currently experiencing a significant correction, with the benchmark Nifty 50 index dropping more than 4% from its record high. This downturn is attributed to sustained foreign capital outflows, muted Q4 corporate earnings, and general election uncertainties. However, despite the current bearish trend, analysts do not foresee a prolonged correction. Instead, they predict the market will offer buy-on-dip opportunities, with a low-teen upside expected for the Nifty index by March 2025.

UBS Outlook on Indian Stock Market

Premal Kamdar, Analyst at UBS Securities, remains cautious on small- and midcap (SMID) companies due to rich valuations and downside earnings risk in a higher oil price scenario. However, he remains upbeat on India’s economic outlook, supported by better-than-expected momentum in domestic economic activities. Despite geopolitical uncertainty posing potential downside risks, Kamdar expects the Nifty 50 to grow earnings at 12–13% in FY25. He also recommends investors take profits in SMIDs and increase exposure to large-caps.

Fixed Income and Rupee Outlook

As for fixed income securities, the Reserve Bank of India (RBI) is expected to maintain its policy stance for some time. Given the current global and domestic macro backdrop, UBS sees limited room for rate cuts this year. It expects a shallow rate-cut cycle of 50 bps by the RBI likely to commence in 2025. Kamdar expects the 10-year Indian bond yield to remain rangebound in the near term before gradually dropping by 50– 75 bps by the end of the next financial year.

On the currency front, India’s resilient macro conditions, strong external buffers and steady FPI inflows driven by global bond index inclusion bode well for the rupee stability. However, the recent strength in the USD index against the unfavorable backdrop of higher-for-longer interest rates dampens the sentiment for all emerging market currencies including the rupee.

Conclusion

Despite the current market correction, the outlook for the Indian stock market remains positive with buy-on-dip opportunities expected. While caution is advised for SMID companies, large-cap companies are recommended for investment. The fixed income market is expected to see a shallow rate-cut cycle, and the rupee is expected to maintain stability despite global headwinds. The overall economic outlook for India remains strong, with real GDP growth of 7% YoY expected in both FY25E and FY26E.