Healthcare, IT, and Finance to Witness Significant Growth, Expected to Offer Attractive Returns: Report Through the outlook, CA forecasts a cautious optimism, amidst a "transitional economic phase."

India is expected to record 6.5 per cent gross domestic product (GDP) growth, placing itself among the world's fastest-growing economies, and despite a moderation in the overall market growth, sectors such as healthcare, IT, and financial services are projected to outperform, offering attractive returns to investors, said Client Associates (CA) in its outlook for the Indian equity markets in 2025.

Through the outlook, CA forecasts a cautious optimism, amidst a "transitional economic phase."

The market outlook highlights that during the neutral market periods, the BSE 500 has delivered annualized returns of 13.85 per cent, while mid and small-cap stocks outshined this at 14.06 per cent and 17.40 per cent respectively. CA said that this reinforces the potential for strong returns even during market fluctuations and sets a positive note for stock market performance in India.

Rohit Sarin, Co-Founder, Client Associates said that strong sectoral rallies marked 2024, but 2025 presents a shift in the landscape.

"While the market's performance in 2024 was underpinned by cyclical growth, 2025 will be a year of navigating a more cautious environment with heightened volatility. Despite the challenges posed by a cyclical slowdown, sectors like healthcare, IT, and financial services remain pivotal in driving long-term growth. Large-cap stocks, in particular, represent strong value opportunities as we move into a year of strategic optimism," said Sarin.

According to the report, despite global challenges such as geopolitical tensions and high interest rates, the global economy showed resilience in 2024. The US led among the developed markets marking a 2.7 per cent growth, largely due to strong consumer spending. The UK recorded 3 per cent growth, while Germany struggled below 1 per cent. Asian powerhouse China saw a notable slowdown to 4.8 per cent with Taiwan standing out with robust growth, buoyed by semiconductor demand and AI advancements.

Client Associates also highlighted the resilient performance of the Indian economy, as global growth slows. The global output is projected to slow down from 3.2 per cent in 2024 to 3 per cent in 2025, India is expected to maintain its strong growth trajectory at 6.5 per cent, mirroring the forecast for 2024.

These indices position India as a key growth driver in the face of a sluggish global economy, especially as major economies such as the US and China show signs of slowing.

A key takeaway from the report is the undervaluation of large-cap stocks. CA said that while mid and small-cap stocks are trading at elevated PE ratios of 34.1 and 30 respectively which is well above their 5-year averages, large-cap stocks are available at a PE ratio of 22, which is remarkably below the average of 24.2. The data suggests that large-cap stocks represent an attractive value opportunity, especially as investors try to fund their way around a more volatile market environment in 2025

For the broader Indian market in FY25, CA forecasts an 8 per cent earnings growth, which is below the 20.1 per cent growth seen in the previous year. However, it also projects a string recovery in FY26, with earnings growth expected to jump to 11.7 per cent, signaling positive signs for the medium-term future.

Also according to the report, healthcare, information technology (IT), and financial services are poised to be the standout sectors in 2025. Healthcare is expected to witness a 19.9 per cent growth, thanks to increasing demand for specialty products and services. Advancements in artificial intelligence (AI) and recovery in global markets are expected to help the IT sector record a 12.9 per cent growth. The report also said that the financial services sector comprised of private banks and non-banking financial companies (NBFCs) is expected to witness a strong performance, benefitting from attractive valuations and a rising need for credit.