January 2025– How sectors fared on returns, risk, and valuations

7 Feb 2025 , 10:10 AM

STOCK MARKET BIG PICTURE FOR JANUARY 2025

How did the Indian stock markets perform in January 2025, in terms of specific generic, sectoral and thematic indices? Here is a quick dekko.

• Let us start with generic indices for January 2025. In this case, the 1-month returns were negative across all generic indices. The Nifty was the best performer, falling just -0.45% in January 2025. The Nifty Next-50 took a much bigger hit of -7.13% in January. Among smaller indices, mid-cap 100 index fell -6.08%, while the Small Cap fell -9.88%. The smaller they were, the harder they fell. On 1-year returns, the Nifty Next 50 and the Nifty Micro Cap dominated at 15.00% and 12.25% respectively.
• What about thematic indices in January 2025. CPSEs, REITS, and Indian Railway PSUs were the 3 themes that generated best returns in January 2025. The worst performing themes in January 2025 in terms of returns were Capital Markets at -14.54%, IPO Index at -10.68%, and SME Emerge at -9.48%.
• Let us turn to strategy indices in January 2025? There was contraction visible across themes; except Low Volatility and Equal Weight. Among the worst performing strategy indices in January were Alpha 50, Multicap Momentum 50, and Small Cap Momentum. Low volatility appears to be a good parking space.
• Finally, what sectors in the month of January 2025? The positive contributions in January came from NBFCs 0.29% and Autos 0.15%. The worst hit were Media at -13.04%, Realty at -12.44%, Consumer Durables at -10.06%, and Pharma at -8.40%.

HOW SECTORAL INDICES FARED ON RETURNS IN LAST 1 YEAR?

The table captures the returns on key sectors with ranking on 1-year returns.

Sectoral Index	1-Year Returns	3-Year Returns	5-Year Returns
Nifty Healthcare Index	21.44	19.60	23.36
Nifty Pharma	20.35	18.53	22.28
Nifty Consumer Durables	19.93	11.52	18.32
Nifty Auto	19.84	26.12	24.40
Nifty IT	19.08	9.26	23.91
Nifty Financial Services	14.43	10.23	10.95
Nifty Non-Banks	12.14	14.18	13.15
Nifty Bank	8.77	10.23	10.61
Nifty Realty	7.91	24.66	23.15
Nifty Metal	6.16	16.91	28.73
Nifty FMCG	4.88	17.93	14.96
Nifty Private Bank	4.18	9.40	8.10
Nifty PSU Bank	1.45	30.06	22.70
Nifty Oil & Gas	-0.41	12.12	18.63
Nifty Media	-26.08	-10.41	-2.24

Data Source: NSE Indices

There are some interesting takeaways on 1 year returns.

• Healthcare and Pharma are leading the 1-year returns at 21.44% and 20.35% respectively. Overall returns have toned down substantially. There were 7 sectors offering double-digit returns in the last 1 year, while media and oil & gas gave negative returns in the past 1 year. It appears to be a clear rush to safety.
• The 15 sectors above gave average returns of 8.94% in the last 1 year. The top 5 had average returns of 20.13%, while the bottom 5 generated average returns of -3.20%. The rankings change if you look at 5-year returns. Metals has been the star performer over the last 5 years, followed by autos and healthcare.

HOW SECTORAL INDICES FARED ON RISK IN LAST 1 YEAR?

Returns just represent one side of the coin. Here is a look at the risk parameters.

Sectoral Index	1-Year Volatility	1-Year Beta	1-Year Correlation	1-Year R2
Nifty PSU Bank	30.13	1.56	0.72	0.51
Nifty Realty	28.77	1.40	0.67	0.45
Nifty Media	27.74	1.07	0.53	0.28
Nifty Metal	26.14	1.41	0.74	0.55
Nifty Oil & Gas	24.76	1.38	0.77	0.59
Nifty Non-Banks	20.67	1.22	0.82	0.67
Nifty IT	19.68	0.73	0.51	0.26
Nifty Auto	19.38	1.08	0.77	0.60
Nifty Consumer Durables	17.80	0.89	0.69	0.48
Nifty Bank	17.19	1.06	0.86	0.73
Nifty Financial Services	17.04	1.08	0.87	0.76
Nifty Private Bank	16.98	1.02	0.83	0.69
Nifty Pharma	15.23	0.55	0.50	0.25
Nifty Healthcare Index	14.95	0.56	0.51	0.26
Nifty FMCG	13.83	0.47	0.47	0.22

Data Source: NSE Indices

The above table is ranked on 1-year volatility (standard deviation) starting with the most volatile sectors and going down to the least volatile sectors.

• In terms of standard deviation of returns, PSU banks, realty, and metals continue to be the most volatile, despite the correction in recent months. Over a longer timeframe higher volatility has been compensated by higher returns. Healthcare is the only sector to give top class returns despite having among the lowest volatility among the key sectoral indices. Private banks continue to be much lower on volatility compared to the PSU banks in the last one year. FMCG and healthcare also have the lowest correlation in the market, making them solid diversification candidates.
• The 15 sectors had average volatility of 20.69% in the last 1 year. The average beta of all sectors was at 1.03, which is understandable as it approximately reflects the Nifty. A total of 10 of the 15 sectors were aggressive with beta of more than 1. However, banks made for bad diversification candidates.

SECTORAL INDICES AND THE VALUATION PLAY IN LAST 1 YEAR

Finally, we look at sectoral valuations ranked on P/E ratios as of January 2025.

Sectoral Index	Price/Earnings (P/E Ratio)	Price / Book (P/BV)	Dividend Yield
Nifty Consumer Durables	75.27	11.92	0.41
Nifty FMCG	45.98	11.23	1.82
Nifty Realty	44.26	5.26	0.42
Nifty Healthcare Index	38.35	5.85	0.57
Nifty Pharma	33.31	5.24	0.66
Nifty IT	32.33	8.82	2.41
Nifty Auto	22.16	4.70	0.99
Nifty Non-Banks	20.79	3.15	0.87
Nifty Metal	20.61	2.39	2.46
Nifty Financial Services	15.77	2.80	0.93
Nifty Private Bank	14.24	2.21	0.60
Nifty Bank	13.15	2.18	1.01
Nifty Oil & Gas	12.89	1.60	2.80
Nifty PSU Bank	7.02	1.23	2.33
Nifty Media	0.00	1.23	0.77

Data Source: NSE Indices

Here are key takeaways from the three valuation parameters.

• On P/E ratio; consumer durables remain the most expensive at 75.3X. Among other sectors with high P/E ratios; Realty and FMCG have P/E ratios of over 40X. Overall Nifty P/E is at 21.3X, which is lot more reasonable. PSU Banks are at single-digit P/E levels while banks and oil & gas are also low on the P/E ratio scale. While the P/BV ratios correspond with the P/E picture, there are now several sectors like PSU banks, oil & gas, IT, and metals with P/E ratios of well above 2.3X.
• The average P/E of all sectors stands at 28.3X, with average dividend yield at 1.27%.

Moral of the story? Healthcare is generating best risk-adjusted returns. That is the real takeaway!