During neutral market periods, the BSE 500 has delivered annualized returns of 13.85%, while mid and small-cap stocks have outpaced this at 14.06% and 17.40% respectively, which reinforces the potential for strong returns even amid market fluctuations,  said Client Associates (CA), one of India’s premier multi-family offices, in its equity market outlook for 2025.

The report suggests that while the broader equity market faces a more cautious outlook in 2025, there is still room for significant returns, particularly in the large-cap stock segment. 

The firm, which manages over $6.1 billion in assets for more than 1100 HNIs and Ultra HNIs, has forecast a year of cautious optimism for Indian equities. With a projected GDP growth of 6.5% for India, the firm sees the country continuing to be one of the fastest-growing major economies globally, despite an overall moderation in market growth.

Rohit Sarin, Co-Founder of Client Associates, emphasized that while 2024 saw significant sectoral rallies, 2025 will require navigating a more cautious environment characterized by increased volatility. "While 2024 was marked by cyclical growth, we expect 2025 to be a year of strategic optimism," said Sarin. "Sectors like healthcare, IT, and financial services are poised to drive long-term growth, even in a period of cyclical slowdown."

The firm’s report highlights that despite the transition to a more volatile market environment, large-cap stocks represent a strong value opportunity, particularly as their price-to-earnings (PE) ratio stands at 22—below the historical average of 24.2. In contrast, mid and small-cap stocks, which have recently surged, are trading at elevated PE ratios of 34.1 and 30, respectively, above their five-year averages.

Client Associates sees healthcare, information technology (IT), and financial services as the leading sectors to watch in 2025. The healthcare sector is expected to grow by 19.9%, fueled by increasing demand for specialized products and services. Meanwhile, the IT sector is anticipated to see a 12.9% growth, supported by advancements in artificial intelligence (AI) and a global market recovery. The financial services sector, particularly private banks and non-banking financial companies (NBFCs), is projected to perform strongly, benefiting from attractive valuations and rising credit demand.

Despite global challenges such as high interest rates and geopolitical tensions, India’s economic performance is set to stand out. While global economic growth is forecast to decelerate slightly from 3.2% in 2024 to 3.0% in 2025, India is expected to maintain its robust growth trajectory at 6.5%. This positions India as a key growth engine amidst a global slowdown, particularly as the US and China face signs of economic deceleration.

Client Associates forecasts a slowdown in earnings growth for Indian companies, with a projected 8.0% growth in FY25, down from 20.1% in FY24. However, the firm is optimistic about a strong recovery, with earnings growth expected to rebound to 11.7% in FY26. This mid-term outlook provides hope for investors looking for long-term returns despite short-term challenges.