Economic Survey 2025 Highlights Risks to Indian Stock Market

The Economic Survey 2025, presented in Parliament ahead of Budget 2025, has raised concerns about the potential impact of a US market correction on the Indian stock market. With elevated valuations and optimistic market sentiments in the US, there's a heightened risk of a significant market correction in 2025. Such an event could have a cascading effect on India, especially given the surge in retail investors who have entered the market post-pandemic.

US Markets at Record Highs: A Cause for Concern?

The US stock market, representing 75% of the MSCI World Index, shows signs of elevated stock valuations, peak corporate earnings, and widespread investor optimism. A downturn could significantly impact global markets, including India. Concerns about the durability of US corporate profits, especially among major technology companies, are rising.

Indian Stock Markets: Growth Amidst Global Uncertainties

Despite global uncertainties, Indian equity markets have shown consistent performance, driven by domestic factors and increased retail participation. The National Stock Exchange (NSE) has seen a threefold increase in unique investors over four years, with individual investors becoming net purchasers in 2020.

India's Market Independence from US Fluctuations

Recent trends indicate that Indian markets are becoming less influenced by US market fluctuations, with a noticeable reduction in the 5-year rolling beta between the Nifty 50 and the S&P 500. However, historical data suggests that Indian equity markets have been responsive to US market movements, warranting vigilance during potential US market downturns.