According to the Zhichun Finance APP, as corporate earnings in India weaken and Global Funds adopt a cautious stance towards the market, the unprecedented continuous rising momentum of Indian Stocks may encounter significant obstacles in 2025.

As the Indian benchmark Index NSE Nifty 50 is set to achieve growth for the ninth consecutive year, economic slowdown and corporate earnings growth pose serious challenges to the index. This is the greatest threat to the market since the outbreak of the COVID-19 pandemic, which has been struggling with numerous bearish factors including the scandal involving the Adani Group, valuation concerns, and pressure on Small Cap stocks.

Prashant Kothari, portfolio manager at Pictet Asset Management Ltd., which manages an approximately 1 billion dollar Indian stock fund, said, "In recent years, we have seen very good economic expansion, but now there may be some clouds on the horizon." He added that opportunities in India "are not enticing."

India is facing tests as the currency environment tightens, the consumption boom during the pandemic wanes, and a strong dollar diminishes the attractiveness of the stock market. It is not only the stock market that feels the pressure; in November, there was the first monthly Outflow of sovereign Bonds since being included in the Morgan Stanley Emerging Markets Index.

In the three months ending September, India's economic growth rate fell to its slowest level in nearly two years, leading to a bleak outlook for the Indian stock market. Worse still, in recent months, the rupee has continuously set historical lows against the dollar, increasing the risk of investing in the stock market.

In this environment, corporate profits show signs of slowing down. Data from Bloomberg Intelligence indicates that India's earnings revision ratio—the difference between the number of positive and negative revisions of the 12-month EPS divided by the sum of both—fell further in November.

Bloomberg Intelligence added that analysts currently expect a 15.2% profit growth for MSCI India Index constituents for 2025, down from 16.5% in early October. Investors are withdrawing amid weak market sentiment, with the Nifty index experiencing its first consecutive monthly decline this year in November.

However, the pessimistic economic outlook and changes in central bank leadership are good news for Bonds, as traders increased their bets that authorities will implement the first interest rate cut since 2020 in the coming months. The Bloomberg Indian Government Total Return Index has risen 10% this year, marking the largest annual increase since 2020.

India's relatively high yields combined with a stable currency make rupee Bonds a favorite among emerging market investors. JPMorgan included the country's sovereign Bonds in its Emerging Markets Index, attracting over 16 billion dollars in inflow year to date.

Moreover, foreign demand may increase when Bloomberg Index Services and FTSE Russell add the rupee to their benchmark indices next year.

Banks such as Morgan Stanley and Goldman Sachs expect that the Indian stock market will continue to rise as government spending and rural demand pick up. If the Nifty index rises for the tenth consecutive year, it will exceed the nine consecutive years of gains interrupted by the bursting of the Internet bubble in the US stock market at the turn of the century.

Since October 1st of this quarter, the Nifty Index has dropped by 5%, with the increase for the year reduced to around 13%.

Amay Hattangadi, Co-Head of Emerging Markets Core Strategy at Morgan Stanley Investment Management, expects that accommodative monetary policies will boost the attractiveness of certain stocks such as non-essential Consumer goods.

Anand Gupta, managing over 2.5 billion dollars in assets at Allianz Global Investors, stated, "The outlook for the Indian stock market is very bright. Our primary focus is on earnings growth, and we expect a strong growth rate of EPS to exceed 13% in the long term."

Despite this, concerns about growth and profitability are unlikely to dissipate in the short term. Since the end of September, overseas investors have withdrawn more than 10 billion dollars from the Indian stock market, making it likely to experience the largest quarterly Outflow since mid-2022.

According to data provider primeinfobase.com, by mid-2024, the holdings of foreign portfolio investors in Indian listed companies fell to the lowest level in 12 years, followed by a slight rebound. This decline led to individual investors and domestic Institutions briefly surpassing the total holdings of foreign Funds for the first time in nearly twenty years.

Nupur Gupta from Eastspring Investments has identified some stress points, although she admits that sustained growth in Consumer spending and service exports driving higher income will be Bullish.

Gupta, the Portfolio Manager for Multi-Asset Investment Solutions at Eastspring, stated, "With the acceleration of economic growth in the USA, the strengthening of the dollar, and the likelihood that US interest rates will remain high for a longer period, it does make the Indian Rupee more susceptible to depreciation. Global investors will consider this when investing in the Indian stock market, particularly in a high cost-hedging environment."