Moneycontrol Pro Panorama | ‘Tis the season of prophecy

Investors may indulge themselves to all sorts of prophecies when it comes to markets.

Dear Reader,

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2024 is slowly grinding to an end (we are still a little over 15 days shy of the new year) and our inboxes have begun to get filled with annual outlooks from everywhere. From your discerning wealth manager to the flamboyant equity broker, from beady-eyed economists to the dollar-glazed sell side analysts and everyone in between have begun to make their predictions for 2025.

We have curated some of them in our Reading list last week and we would be sending your way some more in the list for this week, do take a look. We have also brought some predictions here and here and there will be plenty more coming in the following weeks.

But there are predictions and then there are relevant predictions. Investors may indulge themselves to all sorts of prophecies when it comes to markets; outlooks are dime-a-dozen during the holiday season. What they heed is the predictions and the projections of policymakers. Before we come to the relevant forecasts, let us dive into what is being washed around in the markets for 2025.

The World Gold Council believes that the yellow metal’s prospects won’t shine as bright as this year and with good reason. Granted, there will be uncertainty since wars, be it with weapons or trade, are not easy or fast to resolve. Gold will continue to be that hedge against unpredictable events but its best year in a decade was 2024 which is ending. The US dollar’s heft is back, and the greenback is a formidable alternative when it comes to safe haven asset.

The dollar’s biggest support is the interest rates and bond yields of the US. Marquee bond investors such as Pimco believe that the US yield curve will steepen in 2025 because America’s fiscal balance sheet is bursting, and therefore short-term and medium-term bonds should be picked. There will be vigilance but no vigilantes in the bond market. JP Morgan expects 2025 to be the year of the cut from US Federal Reserve but warns against over optimism. “Overall, the current backdrop suggests the new normal interest rate environment looks a lot like the “old” normal before 2008: attractive yields, tight spreads, positively sloped yield curves and higher income.”

Goldman Sachs expects the Fed funds rate to be 3.25-3.50 percent for 2025 while Citibank’s wealth wing is more cautious at 3.5-4.0 percent. The consensus in the market is for a strong US economic performance, and a cautious rate cutting cycle.

That brings us to the relevant prediction, the one from the US Federal Reserve itself. Next week, the Fed will meet to decide on its policy rates but more importantly it would release its updated set of predictions including the dot plots for fed funds rate. What Jerome Powell will sign off on will be viewed, weighed and perhaps even challenged next year. But it would not be ignored.

What about the rest of the world? Since the US is going to see better returns on its assets, emerging market economies are in a tight spot when it comes to capital. As dollars return home, EMs would find themselves staring at exchange rate weakness and a cyclical slowdown in asset prices. India is no different and equity indices are already showing a snippet of what could be expected next year. While predictions are still rolling in, in summary India is looking at a cyclical slowdown in gross domestic product growth, industrial output and by extension asset prices. Neelkanth Mishra, chief economist at Axis Bank believes that investors must expect a volatile exchange rate, low odds of a rate cut by the Reserve Bank of India (RBI) and a reasonable 7 percent GDP growth rate.

Mishra’s expectation of no rate cuts is countered by Nomura analysts’ expectation of a deeper rate cut cycle from the RBI. While Mishra points to the inflation rate that is yet to reach the 2-6 percent mandated band, Nomura analysts flag the weakening consumption and the impact of robust farm output on food inflation. We have our piece by Manas Chakravarty on November inflation data and why it makes a rate cut easy for the RBI in February. Our
Chart of the Day resonates with Nomura’s concerns on growth but through the infrastructure angle.

What should matter is the RBI’s outlook and the December policy statement was not comforting in this regard. The central bank has hiked its inflation projections and lowered its growth projections. It would soon release its monthly bulletin which has a dedicated chapter on the state of the economy and what can be expected. That should give us ample indications of how the RBI sees 2025.

Meanwhile, there is no harm in enjoying the spectrum of prophecies that would be coming towards us, telling us about what to expect, what to worry about and what to celebrate in 2025. Among the lists of forecasts for growth, inflation, equity indices, bonds, stock prices and exchange rates, the only list that has absolute certainty to come true is the 2025 declared holiday list. Everything else is likely to be as fickle as the blinking lights on Christmas trees. 

Investing insights from our research team

Weekly Tactical Pick – Why this niche FMCG stock merits attention, post correction 

International Gemmological Institute (India) IPO: Will bourses certify the gem?

Home First Finance: Scalability with profitability led by solid execution

What else are we reading?

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Advent’s rush to scale up Suven Pharma leads it to another acquisition

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India’s private healthcare firms to drive growth, but will hurt affordability

Personal Finance: Why the angst against SIP is futile

It’s time for a shift in approach to carbon credits (republished from the FT)

A Constitution is as good as the people and political parties who work it

Misinformed Narrative: Edward Anderson's book a flawed primer on Hindu nationalism and RSS

After ‘Made in India’ whiskies taste global success, artisanal spirits are poised to make their mark

An OPEC for solar power isn’t going to work

2024 was the hottest year on record. What will spur climate action?

Technical Picks: EMUDHRA, RAMOCEM, HAL

Aparna IyerMoneycontrol Pro