An important warning has been given in the Economic Survey 2025. If the US stock market declines, it may directly affect the Indian stock market. The reason for this is the high valuation and positive market sentiments in the US. The report said that if the market falls in India, it could prove to be a major setback for new and young investors.
Danger bell for new investors
A large number of new investors have entered the Indian stock market after the Kovid-19 epidemic. Many of these investors have never been able to see a long or major decline so far. The report states that if there is a correction in the market in 2025, it may affect investors’ feelings and their spending ability badly.
According to the report, there is a deep connection between the Indian stock market and the US stock market. Historically a strong connection has been observed between Nifty 50 and S&P 500. Whenever the S&P 500 declined by more than 10%, the Nifty 50 gave negative returns 21 times out of 22, between 2000 and 2024. On average, the Nifty declined by 10.7%. At the same time, when the Nifty 50 declined by more than 10%, S&P 500 gave positive returns 13 times out of 51.
American market continues
The American market is performing brilliantly for the second consecutive year. The credit goes to big tech companies like Apple, Microsoft, Amazon, Alphabet and NVIDIA. The S&P 500 top 10 index on the basis of these companies has increased by more than 40% so far this year.
In 2023, S&P 500 gave a return of 24% and in 2024 it is also on the way to give more than 20% returns. In the last two years, the US market has gained 56% gains, which is doubled from its equal weight index.
Uncertainty on interest rate cuts
The Federal Reserve in the US has given mixed indications about the interest rate cuts. Earlier in 2025, a 100 -basis point cut was expected, now it has been reduced to 50 basis points. Recently, the interest rates were kept stable in the Federal Open Market Committee (FOMC) meeting. However, Fed Chairman Jerome Powell made it clear that there is no possibility of rate cuts in March 2025.
Valuation risk
Another important warning has been given in the Economic Survey 2025. The valuation of the US market is now at its third highest level, which shows the Schiller S&P 500 CAPE ratio. This means that the possibility of decline in the market has increased, due to which India will not remain untouched.
What should India’s investors do?
The Economic Survey clearly states that the possible decline in the Indian stock market cannot be taken lightly. In such a situation, investors should be cautious and should not take any major decision in a hurry. Especially those investors should take care that have come on the market after epidemic.