The financial landscape of 2024 has been a rollercoaster ride for investors, as market trends showcased familiar, timeless lessons. Amid the surge in investor participation and speculative behavior, several key takeaways have become clear, reminding seasoned market players of the cyclical nature of risk and reward.
During the period from FY16 to FY21, mutual funds, domestic institutional investors (DIIs), and individual investors had been net infusing an average of ₹40,000 crore annually into India’s equity markets. Today, however, Systematic Investment Plan (SIP) inflows alone stand at a staggering ₹3 trillion annually, pushing the overall investment figure to approximately ₹5 trillion when factoring in insurance companies and foreign investments. This monumental surge in liquidity has been a key driver of India’s stock market, causing valuations to rise to eye-popping levels, and leading many to question the sustainability of this bullish trend.
Demand-Supply Imbalance and Its Consequences
The sharp rise in liquidity has fueled the stock market’s flirtation with the stratosphere, yet there is a clear imbalance: too much money chasing too few quality stocks. Gurpreet Sidana, CEO of Religare Broking, noted the diverse sectors benefiting from the liquidity influx. “Electronic manufacturing, semiconductor industries, and infrastructure sectors have capitalized on growing global demand, while green energy and residential real estate have seen significant boosts,” he says. Yet, this robust growth has often come at the cost of sound valuation metrics, with many mid-cap stocks trading at unsustainable P/E ratios.
The frenzy isn’t restricted to equities alone. In what could be one of the most unconventional stories of the year, the real star asset of 2024 was not a stock, bond, or cryptocurrency, but concert tickets. Diljit Dosanjh’s Dil-Luminati Tour and Coldplay’s upcoming India concerts sent fans into a frenzy, with tickets for both events reselling at exorbitant prices—sometimes more than triple their original cost. This phenomenon wasn’t just about demand for entertainment; it highlighted a crucial market dynamic: when liquidity overwhelms supply, price and scarcity take center stage, overriding traditional notions of intrinsic value.
The Rise of Speculative Investments
India’s retail investors, increasingly participating in high-risk derivatives trading, have been another point of concern. The country’s derivatives market is the largest in the world, yet its retail-driven nature has led to significant losses. A study by the Securities and Exchange Board of India (SEBI) revealed that 93% of over 10 million individual traders in the equity futures and options (F&O) segment lost money between 2021 and 2024, with aggregate losses amounting to ₹1.8 trillion. Despite this, many continue to chase short-term returns, fueling volatility in both equity and cryptocurrency markets.
As Ramdas of Green Portfolio points out, “Market participants are chasing short-term returns with great fervor, often overlooking the valuations at which they are buying stocks.” This behavior is exacerbated by recency bias, with new investors extrapolating recent gains into the future, ignoring the underlying risks. “Buying a stock at a 60-70x P/E is acceptable if the future performance justifies it,” Ramdas explains, but this speculative approach leaves little room for caution or due diligence.
A Cautious Outlook for 2025
As we look ahead to 2025, the market’s trajectory appears uncertain. Although 2024 saw nearly 13% returns for the benchmark Nifty 50, marking the ninth consecutive year of positive performance, analysts like Sidana remain cautiously optimistic. “While volatility may persist, particularly in early 2025, India’s growth outlook remains solid,” he notes, pointing to key sectors like manufacturing, digital transformation, and renewable energy that are expected to drive the economy.
However, cautionary voices are also emerging. Anil Rego, founder of Right Horizons PMS, highlights the risks of a potential slowdown, especially in sectors like automobiles, consumer services, and cement. “Moderation in earnings will likely impact the markets if the consensus estimates a higher earnings growth,” he warns.
In conclusion, the market of 2024 has been a case study in liquidity-driven volatility, where demand and price, rather than underlying value, have dictated much of the action. As the year closes, investors are reminded that while the market may be prone to short-term excitement and speculative bubbles, the real challenge lies in navigating the long-term risks of an over-leveraged, overheated market. The lessons learned in 2024 will likely serve as a crucial guide for investors as they brace for the uncertainty of the coming year.
