The Economic Survey 2025 said there is a need to be cautious regarding developments in the Indian and global stock markets.

While the Indian financial sector shows resilience, international market conditions may have some influence on India. Any correction in the US stock market could have implications for global markets, it warned.

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Elevated valuations and optimistic market sentiments in the US raise the likelihood of a meaningful market correction in 2025, the Survey said.

“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 that 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,” it highlighted.

The Economic Survey went on to say that the historical data and research suggest that the Indian equity market has been notably sensitive to movements in the US market.

The Nifty 50 has shown a strong correlation with the S&P 500, with analysis of daily index returns between 2000 to 2024 revealing that in 22 instances when the S&P 500 corrected by more than 10 per cent, the Nifty 50 posted a negative return in all but one case, averaging a 10.7 per cent decline.

“This underscores the asymmetric relationship between the two markets, highlighting a more pronounced impact of the movement in US markets on Indian equities than the other way around,” it said.

The Survey has highlighted the performance of the banking and financial sector saying the sector remains stable and well-capitalised, and is catering to the financing needs of the economy.

While credit disbursal by scheduled commercial banks (SCBs) is growing in double-digits, there has been a moderation in the growth in recent months. This is on the back of a high base and also due to regulatory tightening in sectors where high growth was observed, it said.