Outlook 2025: How to build a winning stock market portfolio? Here’s your playbook

We are optimistic about the performance of the Indian stock market in 2025, though we advise caution in the short term. The optimism comes as the strength of the world economy is forecast to be maintained at a decent rate of plus 3% in 2025. The G20 economies are also expected to grow at a healthy rate of 2.6% in 2025, consistent with 2024, indicating no recessionary pressures or structural weaknesses in the short to medium term. This outlook is further supported by the consolidation of hyperinflation over the past three years (2022-2024). Additionally, anticipated interest rate cuts are expected to mitigate future economic headwinds. There is also a growing belief that the world will experience more peace compared to the high geopolitical risks seen in Eastern Europe and the Middle East over the past two years. Furthermore, the correction in metals and crude prices is positive for India, as it helps reduce the fiscal deficit.

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Generally, the environment is not anti-equity. However, caution is warranted due to the high valuations in countries like the US, India, Taiwan & Japan as well as the economic slowdown in regions such as China & India. Also, currently, a key concern is the appreciation of the USD, which is expected to continue in the short to medium term due to the effect of tapering. This is expected to reduce financial liquidity and slow down the growth of EMs, which can lead to a consolidation in future valuation.

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Another source of uncertainty is the impact of ‘Trumponomics’ on tariffs, which could introduce further volatility in EMs. However, this could also create optimism for India if the tariffs are not applied to domestic products providing competitive advantages. Yet, it is feared that India may also have to fear the fight in the future on a product-to-sector basis, as Trump will look for negotiations on a case-to-case basis to gain trade concessions for the US. Anyway, currently these are unknown risks which will be elaborated on in the next 2-3 quarters, thus bringing current uncertainties.

In summary, the current environment supports a balanced approach to equity investments, with no major global economic issues aside from uncertainties related to tariff policies, valuations, and tapering. The uncertainty surrounding Trump’s economic policies & high valuation may impact the stock market in the short term, particularly in emerging markets. There are no signs of recession, though tapering could influence valuations. We suggest a balanced portfolio, with picks on specific stocks and sectors, along with investments in gold, silver, and debt instruments, bringing essential stability to the holdings. We have an optimistic view on a medium to long-term basis with caution in the short term.

Portfolio Strategy

The strategy is to hold a multi-asset portfolio with 60% in equity, 25% in debt, 10% for gold and 5% in cash to manage new opportunities. In equity, the focus should be on large-caps, as valuations of mid-caps are back to historical peak ratios of 60% to large-caps. Some sectors in focus are chemicals, defence, renewables and EMS but most of them are trading at premium valuation. Still, these high valuations are likely to stay put in the medium to long term as they are likely to scale up at a good rate, which suggests a buy-on-dips strategy.

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Additional opportunities lie in private large banks and infrastructure, which benefit from stable asset quality and fair valuations compared to long-term averages. The FMCG sector presents a contrarian bet, having underperformed over the past two years, due to favourable climatic and market conditions anticipated in 2025. The textiles sector also appears promising due to the China+1 strategy, turmoil in Bangladesh, and reduced input prices for cotton and non-cotton materials. Indian textile companies have been investing in capacity expansion over the past 2-3 years, which could yield positive results in the future.

(The author is Head of Research, Geojit Financial Services)

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