CLSA predicts muted Nifty 50 returns for 2025; replaces HDFC Bank with Tata Motors, NTPC and THESE stocks in portfolio | Stock Market News

2025 Market Outlook: CLSA anticipates a challenging year for the Nifty in 2025, driven by an uncertain and risky global macro environment coupled with a near-term economic slowdown in India. The research firm forecasts muted returns for the index due to elevated valuations and underperformance of actual capex spending versus expectations. CLSA sees rising tailwinds for affordable consumption and has adjusted its portfolio accordingly, favouring staples and raising the sector to a significant overweight.

The firm has included Tata Motors, NTPC, Nestle, and Britannia in its India focus portfolio while removing HDFC Bank and notably reducing its overweight position in the banking sector. CLSA remains overweight on commodities and insurance and underweight on IT, discretionary, industrials, and healthcare sectors.

Conflicting Macro Setup for 2025

CLSA highlighted that the severity of potential trade restrictions under Donald Trump’s administration could significantly influence export-focused emerging markets (EMs) like China. A less severe stance might redirect inflows to EMs, potentially making India underperform during a broader EM rally led by laggards. Conversely, stringent restrictions might favour India’s position.

Additionally, CLSA pointed out that recent commentary from the US Federal Reserve casts doubt on large interest rate cuts in the United States for 2025. Coupled with Trump’s potential policies, these factors could strengthen the US dollar.

On the domestic front, a conducive environment for rate cuts is emerging under the Reserve Bank of India’s (RBI) new leadership, especially with inflation cooling due to a high base. However, CLSA noted that the relative overvaluation of Indian bonds and the rupee compared to global peers might limit a significant reduction in Indian bond yields.

Lower expectations provide good risk-reward in affordable consumption

CLSA further said that Indian equity valuation remains well above its long-term average as well as at a relative premium to peer markets plus bonds. This may keep absolute Nifty returns muted in 2025, according to CLSA.

However, it noted that the last six months have seen a prominent increase in the government’s willingness to raise spending on welfare schemes, particularly around state elections to attract voters. These, along with a rise in crop sowing plus good rains, should improve rural incomes and help drive some recovery in affordable consumption.

CLSA further stated after the recent pullback we find large-cap affordable consumption names trading at much lower premiums to historical averages than the massive premium seen in investment and capex stocks. It emphasised that capex spending by both central and state governments has seen double-digit declines in the fiscal year so far and is likely to miss full-year targets. This scenario, according to CLSA, may drive a short-term preference for consumption-focused stocks while cooling off the elevated valuations of capex names.

Portfolio Adjustments: Additions and Exclusions

In response to the recent steep market correction, CLSA identified over 30 companies within the NSE 200 index trading more than 20 per cent below their 52-week highs with positive recommendations.

CLSA included Tata Motors in its portfolio, stating that the stock, after a 35 per cent decline, adequately prices in risks associated with a slowdown in the commercial vehicle and Jaguar Land Rover (JLR) segments. NTPC’s recent correction was seen as an opportunity to invest in the power sector and benefit from capacity additions expected in the first half of 2025.

To capitalise on low stock expectations, despite changing government actions in favour of affordable consumption, CLSA added Nestlé and Britannia to its portfolio after significant declines in their stock prices. According to the firm, these additions enhance portfolio defensiveness amid a turbulent global macro environment following Trump’s assumption of office.

CLSA removed HDFC Bank from its portfolio, adjusting weights to accommodate the new entrants. The research firm also reduced its overweight stance on banks in anticipation of potential RBI rate cuts. 

Portfolio Performance Overview

CLSA acknowledged that while its portfolio managed to outperform the Nifty by 30 basis points in 2024, it underperformed by 4.1 percentage points in the last quarter due to a significant correction in some holdings. Despite this, the portfolio has delivered a return of 186.7 per cent since its inception in January 2021, compared to 77.3 per cent for the Nifty.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.