Dear Investors,
Volatility continued in January 2025 in the domestic equity market with the Nifty and Sensex down 0.6 – 0.8% on a month-on-month basis. The Nifty slipped below the psychologically important 23,000 level but recovered to close the month above 23,000. The broader market saw deep cuts, particularly in the small cap segment. The Nifty Small Cap 250 TRI was down nearly 11%, while the Nifty Midcap 150 TRI was 6.1%. Heavy FII selling pressure continued in January with net sales of more than Rs 70,000 crores. All industry sectors were in red in January. Capital Goods, Power, Infra, Realty, Consumer Durables and PSUs were the worst performing sectors.
The US market posted solid gains. However, tech stocks and the NASDAQ experienced high volatility due to concerns about disruptive impact of Chinese AI startup DeepSeek. Among other developed markets FTSE, CAC and DAX posted gains in January, while Nikkei ended flattish. Within the EM basket, India underperformed. US Treasury bond yields remained high in January closing the month at 4.54%. Inflationary impact of new tariffs announced by the Trump administration and strong dollar is keeping bond yields high.
The 10-year G-Sec yield eased by 7 bps in January. Revision of the fiscal deficit target for FY 2024-25 to 4.8% in the 2025 Budget may put pressure on bond yields. The bond market trajectory will now depend on where RBI changes its monetary policy stance from "neutral" to "accommodative" following Government's fiscal policy to boost consumption and economic growth through tax cuts.
The 2025 Budget focused on boosting savings and consumption in the economy, thereby spurring GDP growth in FY 2025-26. One of the most talked about policy decisions in the 2025 Budget was changes in the Direct Tax code, which ensures that the salaried class with income up to Rs 12.75 lakhs will not have to pay any income tax in the New Tax Regime. This was done by increasing the rebate u/s 87A to Rs 60,000 for income slabs up to Rs 12 lakhs (after standard deduction of Rs 75,000). The income tax change will put more disposable income in the hands of the salaried class, who have opted for the New Tax Regime. This will result in higher savings and consumption. The tax change has also made the New Tax Regime even more attractive than the Old Tax Regime. However, the Old Tax Regime may still be beneficial for tax payers who can claim sufficiently high deductions in HRA.
The Prime Minister's Dhan Dhanya Krishi Yojana, aimed at districts with lower agricultural productivity, and the increased limit for Kisan Credit Card can boost rural income and rural consumption, benefiting sectors like FMCG, consumer durables etc. Thematic consumption funds (including rural consumption focused funds) can benefit from the Budget measures.
Increasing FDI limit in insurance sector from 74% to 100% will benefit the sector and attract more foreign investments, benefiting insurance companies. The Budget also clarified that to qualify for exemption u/s 10(10D), ULIP premiums can neither exceed 10% of sum assured nor exceed Rs 2.5 lakhs p.a. Failure to comply with these conditions will attract capital gains tax, making taxation of ULIPs consistent with other investment products like mutual funds.
Investors should focus on asset allocation with due considerations towards large caps. We advise investors to also continue investments in midcaps and small caps through SIPs with long investment horizon to take advantage of volatility through Rupee Cost Averaging. Thematic funds can also be included in the satellite portfolio to benefit from the focus on sector specific areas.
Assuring you of our best services.
Best Wishes,
Ajoy Agarwal,
(Managing Director)
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