Economic Survey 2024-25 cautions against 'meaningful' market correction in 2025

Economic Survey 2024-25 warns of potential market correction in India due to increased young investor participation and U.S. valuations.

Sounding a note of caution on the elevated stock market valuation, the Economic Survey 2024-25 on Friday (January 31, 2025) said any correction in the U.S. markets could have a cascading effect in India, which has witnessed increased participation from young investors post-COVID.

Over the past few years, retail participation, especially from young investors, has significantly increased in the equity markets. Investor participation has grown from 4.9 crore in FY20 to 13.2 crore as of December 31, 2024.

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“Elevated valuations and optimistic market sentiments in the U.S. raise the likelihood of a meaningful market correction in 2025. Should such a correction occur, it could have a cascading effect on India, especially given the increased participation of young, relatively new retail investors.”

"Many of these investors who have entered the market post-pandemic have never witnessed a significant and prolonged market correction. Hence, if one were to occur, its impact on sentiment and spending may be non-trivial," the Survey noted.

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According to the Survey, the rise in retail participation aligns with a steady decline in the five-year rolling beta between the Nifty 50 and the S&P 500 in the last four years, suggesting a reduced sensitivity of Indian markets to U.S. market movements.