Investors will find it tough in the beginning of 2025 following the volatility seen in the markets from September.

A smorgasbord of factors is set to test investor nerves from corporate earnings, RBI’s interest rates and geo-politics to Donald Trump’s policies and Union budget.

Market experts are of the opinion that 2025 is unlikely to be an easy period, with stock picks separating those who make profits from the not so lucky ones.

The Sensex ended at 78699.07, while the Nifty settled at 23813.40 on Friday. At this level, the 30-share gauge is off 8.46 per cent from its all-time closing high of 85836.12 touched on September 26 whereas the Nifty has dipped nearly 9.37 per cent.

In stock market parlance a fall of 10 per cent is defined as a "correction’’, whereas a crash of 20 per cent is said to be a "bear market’’. Though stocks weathered an eventful first six months last year — marked by the general elections outcome where the ruling BJP did not get a majority on its own, firm inflation resulting in the Reserve Bank of India (RBI) holding on to elevated interest rates and lacklustre India Inc report card — it came under selling pressure since late September.

This has been attributed to expensive valuations relative to corporate earnings which have resulted in FIIs offloading stocks in the secondary market, geo-political tensions, the election of Donald Trump as the 47th President of the United States and more recently, an hawkish Fed signalling fewer rate cuts in 2025.

Market analysts said much will depend on an earnings turnaround in the third quarter ended December 31, 2024.

A lot is riding on the Union budget, which is expected to address the issue of slowdown and urban consumers particularly the salaried class loosening their purse strings.

This will be followed by the Reserve Bank of India’s monetary policy on February 7.

The central bank under the new governor Sanjay Malhotra is expected to cut the policy repo rate by 25 basis points. Markets will also keenly watch the monetary policy committee’s (MPC) guidance on interest rate.

"The next key drivers for the markets will be the results and the budget. So far results in the first two quarters of this financial year have not been good. So, the expectations are that there will be at least some improvement in the third quarter on a sequential basis. Another factor that will impact stocks will be the budget,’’ said Arun Kejriwal, director, KRIS, an investment research firm.

"We will have to see whether the budget delivers and whether FIIs continue to sell. In nutshell we can say that next year will be a tougher year for the stock markets than what we saw in 2024. Making money will be tough,’’ he said.

In its 2025 outlook report, ASK Private Wealth, the wealth management arm of Blackstone-backed ASK Asset & Wealth Management Group, said that quality, momentum, low volatility, value and growth will be the key investment theme for navigating the challenging backdrop presented by the combination of slowing earnings and high valuation supported by sustained domestic flows.

The report cautioned against sustained inflows from domestic individual investors, a stabilising force but very recent to the market, who have good experiences but might panic at a short-term downturn.

“2025 is a year of recalibration — where precision in investment strategy is crucial. While current valuations test the resilience of markets, the robust domestic flows and the resilience of Indian investors provide a significant safety net,” Somnath Mukherjee, chief investment officer and senior managing partner, ASK Private Wealth, said.

“Investors should focus on quality and growth factors, which have historically demonstrated resilience in challenging conditions,” Mukherjee said.

Among brokerages, Jefferies said the Indian economy will bounce back in the second half of the fiscal.

It said an improvement in government spending, better liquidity and a low base of the previous year will lead to GDP growth picking up.

The brokerage has set a target of 26600 for the Nifty in 2025. On the other hand, Goldman Sachs has put the bellwether at 27000.

“Looking ahead to 2025, several market trends will likely shape investor sentiment. Geopolitical issues, including ongoing tensions in West Asia and the Russia-Ukraine war, as well as potential trade wars under a new Trump administration, will continue to influence the global landscape,” Ross Maxwell, global strategy operations lead, VT Markets said

“Investors should pay close attention to central bank decisions on monetary policy, particularly regarding interest rates and inflation.’’