Earnings uncertainty, high valuations: Brokerages advise caution for 2025

Fundamentals strong but earnings growth uncertainty, elevated valuations seen capping upside

Indian equities are expected to deliver modest returns in 2025, as brokerages cite uncertainty around earnings growth and elevated valuations as major concerns even as India’s fundamental growth story remains promising. 

UBS on Tuesday warned of potential derating in the Indian market due to high valuations and the Reserve Bank of India’s limited ability to cut rates aggressively. Nomura also expressed similar concerns last week, stating that India’s market faces near-term risks of derating amid a slowing macro and earnings cycle. Domestic brokerage Kotak Securities on Tuesday set a modest Nifty target of 26,100 for December 2025, implying a 6 per cent upside from current levels. 

“While there are a lot of structural long-term positives, we see India as one of the most expensive markets outside of the US. We expect a potential catch-down next year,” said Manik Narain, Head of EM Strategy at UBS, while sharing emerging market outlook for 2025. Narain added that the decline in the savings rate for the household sector has meant that the RBI is somewhat constrained in its ability to cut rates aggressively. 

While the RBI has cut the cash reserve ratio (CRR), Narain noted that the central bank is constrained in its ability to deliver aggressive monetary easing unless the economy takes a turn for the worse. Additionally, strong retail flows in recent years have already provided some valuation support for equities, leaving limited room for further upside, he said, adding that he sees a potential for the market to de-rate further. 

 

Last week, Nomura too had said there is a case to be “cautious, but not overly pessimistic” on Asia in 2025. It had cited elevated geopolitical tensions, less supportive monetary policies, and China's restrained fiscal stimulus as reasons for caution.

“Balancing between economic, earnings, sectoral cycles, structural growth prospects, geopolitical risks, and equity market liquidity, we remain structurally overweight on India. Although we see some more near-term risk of healthy valuation de-rating amid a slowing macro, earnings cycle, structural attraction remains intact and the market will still likely post above-average earnings growth, even assuming earnings misses,” the brokerage said. 

Kotak Securities said while India’s macroeconomic position remains robust, driven by solid growth, a stable currency outlook, and manageable fiscal and inflation pressures. But, recent quarterly results revealed a slowdown in rural demand, contrasting with the June recovery, and an unexpected decline in urban demand. The brokerage said it anticipates India’s macroeconomic situation to improve in the coming quarters, with inflation expected to be moderate. And festivals and weddings contribute to enhanced earnings. 

Kotak Securities expects the earnings per share for the Nifty 50 firms to grow by 4.9 per cent to Rs 1,036 this financial year, followed by a 16.3 per cent and 14 per cent growth in FY26 and FY27. 

The domestic brokerage also has a bullcase and a bearcase target of 28,800 and 23,300, respectively.