The Sensex, India’s bellwether stock index, had a turbulent yet rewarding 2024. Starting the year at 72,271 points, it closed at 78,139, marking an impressive annual gain of 9%. This rise was, however, marked by volatility. In September, the index surged past 85,000 points, only to retreat later due to a mix of global and domestic challenges.

A sharp decline in GDP growth to 5.4% in the last quarter—down from the projected 7%—shook investor confidence. Foreign Portfolio Investors (FPIs) turned net sellers, withdrawing substantial funds. Corporate earnings forecasts for subsequent quarters dampened market sentiment further. Additionally, a widespread perception that the Sensex at 85,000 points had entered speculative territory prompted caution among market participants.

A Decade of Transformation

A decade ago, the late Rakesh Jhunjhunwala predicted that the Sensex would reach 40,000 points. This projection, once met with skepticism, was significantly surpassed even before his passing in 2022, thanks to prudent domestic policies and favorable global trends. The market’s resilience amid disruptions like the COVID-19 pandemic highlights the strength of India’s financial ecosystem.

Despite a two-year pandemic hiatus, the economy displayed remarkable resilience. Prudent fiscal management during this period ensured stability, paving the way for a post-pandemic resurgence driven by pent-up demand and structural reforms.

Domestic Investors Drive Resilience

In the latter half of 2024, FPIs pulled out nearly Rs.1.76 lakh crore, with a net investment of just Rs1,600 crore by December. Despite this, the Sensex remained buoyant, underpinned by the growing influence of domestic investors. What was once a niche interest in affluent regions like Maharashtra and Gujarat has expanded nationwide. Digitization has played a pivotal role in this transformation, enabling even small investors to participate via mutual funds and systematic investment plans (SIPs).

This democratization of finance has strengthened the market's foundation, reducing its dependence on foreign inflows. The increasing adoption of digital tools has empowered ordinary Indians, turning smartphones into personal banks and encouraging long-term wealth creation.

Navigating Global Challenges

Ironically, past stock market scandals by Harshad Mehta and Ketan Parekh helped popularize equity investments. These events led to stronger regulations and increased transparency, boosting investor confidence. As 2025 begins, global uncertainties loom large. Donald Trump’s return to the White House on January 20 is expected to bring policy shifts, including measures to dollarize the global economy and impose penal tariffs on trading partners, including India.

The Indian rupee depreciated 2.8% against the US dollar in 2024, ending the year at Rs 85.59, marking its seventh consecutive year of depreciation. However, the rupee’s strength against other major currencies like the Japanese yen and British pound highlights its relative resilience. While a weaker rupee raises domestic concerns, it benefits exporters, the IT sector, and Non-Resident Indians (NRIs) remitting funds.

Fiscal Discipline and the Path Forward

The Federal Reserve’s decision to limit interest rate cuts in 2025 has unsettled global markets. However, India’s fiscal discipline, reflected in a fiscal deficit of 4.9%, provides a cushion against external shocks. Finance Minister Nirmala Sitharaman’s upcoming budget on February 1 is expected to focus on growth and middle-class relief, with demands for income tax cuts and incentives to boost consumption.

Despite challenges in sectors like automobiles and cement, the monthly growth in GST collections signals recovery. The Sensex’s performance reflects the resilience of India’s corporate sector and the maturity of its financial markets.

Looking Ahead - The road ahead for 2025 is fraught with challenges, from Trump’s economic policies to domestic fiscal pressures. However, the Sensex’s journey in 2024 serves as a beacon of hope, underscoring the strength of India’s economic fundamentals and the collective resilience of its people.

As millions of small investors deepen their engagement with the stock market, the focus will continue to shift from short-term volatility to long-term wealth creation. Sustaining this momentum will require the unwavering support of regulators and financial institutions.