Domestic tailwinds and global headwinds: Can the rally sustain?
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The downturn in the Indian stock market, which began in October 2024, coincided with a slowdown in economic growth and corporate earnings. The post-COVID crash rally, which took the Nifty from 7,511 in March 2020 to 26,277 in September 2024, was fundamentally supported by GDP growth and earnings. During the three years from FY22 to FY24, GDP grew by 9.7%, 7.6%, and 9.2%, respectively. This growth was accompanied by strong earnings expansion, averaging above 20% during the period. However, the sharp deceleration in Q2 FY25 GDP growth to 5.4% (later revised to 5.6%) became the fundamental trigger for the market correction that began in October 2024. The earnings downgrade for FY25, from the initial estimate of 15% to 7%, further accelerated the market downtrend. Live Events Economists have been debating whether this dip in growth is cyclical or structural. While some structural factors have played a role, the slowdown is largely cyclical. F...