Indian stock market unlikely to scale new highs this year, predicts Apurva Sheth of SAMCO Securities

Apurva Sheth, Head of Market Perspectives & Research, SAMCO Securities sees Nifty at 23,500 by 2025-end. Sheth doesn’t expect the markets to scale new highs in 2025. The best case scenario for markets will be to remain range bound from 26,277 to 21,281, the expert added. Amid high uncertainty in the market, Sheth advises investors to follow a balanced approach and diversify investments into multiple non-correlated asset classes to minimise the damage from one asset class (equity). Edited Excerpts:

What is your December 2025 target for Nifty 50?

Our target for Nifty is 23,500.

Do you expect indices to hit a fresh peak anytime this year?

Nifty has witnessed a sharp correction of more than 15% from the highs of 26,277. The frontline index valuations are now reaching close to the long-term averages. Thus, the downside appears limited from current levels. However, the index will take its own sweet time to recover. As a general rule, markets take the stairs up and the elevator down. It has taken almost 6 months for a 15% correction. It will take much more than 6 months to recover this lost ground. Thus, we don’t expect the markets to scale new highs in 2025. The best-case scenario for markets will be to remain range-bound from 26,277 to 21,281 in 2025.

What is your sentiment on mid-caps and small-caps - Avoid or accumulate?

The valuation of small-cap and mid-caps is still elevated. There is still a lot of room for correction in these stocks. In October 2024, the price-to-book ratio of the Nifty Midcap 100 index went past its all-time high of 5.2, hit earlier in 2008. It recorded a high of 5.6 and is currently placed at 4.4. The median level is placed at 2.6. For the Nifty Midcap 100 index to touch its median, there should be a significant correction or earnings should catch up. We don’t see a possibility of earnings catching up in a hurry. Thus, we recommend an avoid rating in mid and small-cap space for now.

The IT index has been in a slump this year. What's behind the fall and do you expect it to recover?

The Nifty IT index has fallen over 16% in early 2025, driven by the US recession fears, cautious client spending, and rising AI competition. The weakening rupee, typically a tailwind, offered limited support amid global demand concerns. Downgrades by global brokerages and muted growth outlooks have further pressured sentiment. However, with strong fundamentals, ongoing digital transformation, and potential stabilisation in global demand, a recovery cannot be ruled out in the medium term, especially if macroeconomic headwinds ease and client spending improves.

How will the IndusInd Bank fiasco impact the banking sector? Are you bullish or are you turning bearish on the space now?

The IndusInd Bank fiasco has raised concerns about corporate governance, and risk management in the Indian banking sector, prompting the RBI to tighten regulations. While this may lead to stricter compliance and audits, it will enhance transparency, benefiting customers and investors.

However, this does not indicate issues across the banking sector. Instead, it could lead to stronger regulatory oversight, reinforcing trust in financial institutions. Currently, the banking sector is trading at low valuations, and improved governance could drive renewed investor confidence. As this chaos settles down, the sector is likely to regain momentum, supported by strong credit demand and improving financial metrics.

IPOs have been a bit lacklustre recently but the pipeline is pretty solid for the year. However, with the market in correction mode, is investing in an IPO a good decision?

IPOs are a product of bull markets. If the secondary markets remain lacklustre then the IPO pipeline will remain dry. Companies would like to wait for the markets to improve, so they get higher valuations. In general, investing in IPOs for retail investors is not so great decision simply because most companies don’t have a proven financial track record and they come at demanding valuations. Investors would be better off waiting for six months for the companies to prove their mettle for the price they had asked in the IPO and for the markets to absorb the anchor book selling.

What investment strategy would you suggest to investors for a volatile year like this one?

This is a year to focus on return of investment rather than return on investment. In times when uncertainty is high we must follow a balanced approach and diversify investments into multiple non-correlated asset classes to minimize the damage from one asset class (equity).

Apart from equities, gold, bitcoin, and realty are rising. Which asset class would you suggest for a volatile environment?

In a volatile environment, our preferred choice would be gold over anything else. Bitcoin is a relatively newer asset class with a limited track record. Apart from this, the regulatory environment related to cryptocurrencies is also not in favour of investors. Exchange-level risks are also there, as even they are not safe from hackers. 

Realty sector provides diversification and commercial real estate provides good yields too. But realty is not everyone’s cup of tea as ticket size is large. The real estate market is illiquid and therefore only suitable for HNIs with a large portfolio. Thus, gold is an obvious choice. We would also recommend taking some exposure to silver as it can add alpha to your precious metals portfolio.

Do you see FPIs returning to India anytime soon?

FPI flows chase returns, they do not cause them. FPIs stayed in India as long as their stay in the Indian market remained remunerative. As soon as they found lucrative opportunities elsewhere, they flew away. Rising yields in the US bond markets and rising stock prices in the US have acted as major deterrents to their presence in the domestic market. FPIs will return to India once the valuations in our markets become attractive and offer a good risk-reward opportunity for them.

One Piece of advice for new investors.

A common mistake new investors make is extrapolating current trends into the future, assuming that a rising stock will keep going up or a falling stock will continue declining indefinitely. Markets, however, move in cycles, influenced by economic shifts, earnings growth, interest rates, and sentimental changes. You must learn to identify these shifts in cycles to make the most from the markets.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.