Indian capital markets had a dream run in 2024: ICICI Prudential AMC's S Naren

We still believe that the return environment in the near term is still moderate because valuations are still not cheap,

The year 2024, according to S Naren, Executive Director and Chief Investment Officer at ICICI Prudential Mutual Fund, was one of the best years for capital markets. He was speaking as a part of ICICI Prudential AMC's Market Outlook 2025 presentation. The year, he noted, marked a historic high in capital fundraising, driven by Initial Public Offerings and Qualified Institutional Placements. "No one would have imagined that we would be able to raise so much of monies in the capital markets," he noted.

Naren added that India’s low fiscal deficit, manageable current account deficit, and lower inflation have been of importance. "India was actually the paradox where the economy was in very good shape," he added. On the other hand, major economies faced challenges. "The US economy was doing extremely well, but indicators like fiscal deficit and inflation were high," he noted.

For 2025, Naren remains cautiously optimistic. "We still believe that the return environment in the near term is still moderate because valuations are still not cheap," he said. They recommended hybrid and flexible investment strategies in order to mitigate risks. "We are still a believer still a moderate return world, which is why our favorite investment opportunity at this point of time is still asset allocation, which means invest in hybrid categories on a lump sum basis, systematic investment plan, investing in inflexible mandates at this point of time," he said.

Here are some of the other key highlights from the year gone by and opportunities in 2025:

Gold, Silver, and Equities take the lead
According to Naren, one of the most surprising developments in 2024 was the growth in assets like gold, silver, and equities. "No one would have ever believed a year where gold and silver and equities doing very well is something which is not normal," he noted. Gold and silver usually perform well during economic downturns or market corrections, while equities thrive in periods of economic growth. "This was something very unique to 2024," he added.

Risk burden moves to individual investors
Another major shift in the capital markets has been the shift in risk burden from banks and corporates to individual investors. "Most of the risk this time is actually lying with the investor and not with the corporates," he said adding that unlike previous cycles where banks funded corporate projects, this time, corporates raised funds directly through equity markets, particularly IPOs and QIPs.

India, he noted, had a dream run. "For a person like me, who has seen markets longer, it was a very difficult task to tell investors that equity markets can deliver negative returns. Most people now in the markets believe that equity markets can never deliver negative returns and it will always deliver positive returns. And that has been the biggest change," he explained.

In this changing dynamic, Naren added that they have been advising investors to follow diversification in order to manage risk effectively.

On earnings in 2024On poor earning performance, Naren noted that one needs to understand where the earnings are coming from. For example, oil marketing companies reported poor numbers in the last quarter due to inventory losses, which dragged down aggregate earnings. In contrast, sectors such as banking showed robust performance, with "economy-sensitive industries like banking showed good earnings", he explained. On the other hand, the microfinance sector remained very bad shape. Naren suggests that earnings across the board is not the challenge, rather it has been specific segments.

Concerns on Rupee versus Dollar
Naren noted that the rupee has appreciated against most currencies except the dollar, adding that global dollar strength rather than weaknesses in the Indian economy was the reason for the difference." While there was possibility of near-term depreciation, Naren noted that it  was not a structural issue for the Indian economy.

Mid-, Small- and Mega-Cap Stocks exceed expectations
Despite being overvalued at the start of 2024, mid- and small-cap stocks significantly outperformed large-cap stocks. "We thought that mid-caps and small-caps will underperform large-caps, but it never happened," he added. This growth, he suggested, came on the back of strong local investor participation.

Mega-cap stocks, he added, also delivered exceptionally high returns, driven by robust earnings growth and increased global interest in Indian equities. "Mega-caps played a stabilising role in portfolios while also generating strong returns, which is unusual given their size and maturity," he said. Within mega caps, the sectors driving performance included IT, Banking and Energy.

Finding new opportunities
As part of their focus on finding new opportunities in 2025, Naren highlighted that they see rural emerging as a promising theme on the back of strong government support for the sector. ICICI Pru AMC has announced a Rural Opportunities Fund to play on the growth in this segment, especially in the run up to the 2025 budget.

"We felt that this was the right time to launch a theme targeting rural growth, especially considering the scope for improvement in mass consumption trends," Naren explained.

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