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

4 Jun 2025 , 11:09 AM

STOCK MARKET BIG PICTURE FOR MAY 2025

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

• Let us start with generic indices for May 2025. In this case, the 1-month returns were positive across all generic indices. The Nifty closed May 2025 with gains of just 1.92%. The Nifty Midcap-100 rallied 6.16% in May 2025; while the Small Cap 100 rallied 8.77% in the month. But the big star was the Microcap 250 gaining 12.13%. In May 2025, the big trend was that small was truly beautiful.
• What about thematic indices in May 2025? It was the return of the alpha favourites. Amidst rising tensions on the Indo-Pak border; the Nifty India Defence gained 21.9%. Nifty Capital Markets was another star performer at 14.1%, while the Railways index also rallied 11.1% in May 2025. Other themes that deserve mention were Nifty Waves at 10.3%, Nifty EV at 7.1%, and Nifty India Internet at 6.1%.
• Let us turn to strategy indices in May 2025? With the theme shifting on a different plane from global plays to domestic plays, Small Cap Quality led the way with 10.7% returns, while Small Cap Momentum Quality earned 8.6%, and High Beta 50 rallied 8.6%. The themes in May were tilted towards small stocks and more aggressive strategies.

Let us turn specifically to the sectoral indices and how they ranked in terms of returns, risk, and valuations.

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 Non-Banks	29.00	24.55	27.80
Nifty Financial Services	22.76	18.12	23.64
Nifty Healthcare Index	18.44	22.01	20.37
Nifty IT	17.48	10.16	24.05
Nifty Pharma	14.82	20.29	17.84
Nifty Bank	14.38	17.11	24.40
Nifty Private Bank	14.35	15.77	21.71
Nifty Consumer Durables	6.73	15.23	25.22
Nifty FMCG	4.75	14.58	15.78
Nifty Auto	0.40	27.33	31.39
Nifty Oil & Gas	-1.06	14.37	23.00
Nifty Metal	-4.78	21.18	39.31
Nifty PSU Bank	-4.81	41.25	45.29
Nifty Realty	-6.62	32.55	39.86
Nifty Media	-7.92	-5.34	8.38

Data Source: NSE Indices

There are some interesting takeaways on 1 year returns.

• For the fourth month in a row, BFSI led the narrative of market returns. Nifty Non-Banks Index led with 29.0% returns in last one year; followed by Nifty Financial Services at 22.8% and Nifty Healthcare at 17.5%. A total of 5 out 15 sectors gave negative returns; with the worst being Media -7.9%, Realty -6.6%, PSU Banks -4.8%, and Metals -4.8%. If we leave out media, the other three are classic cases of steep valuations unwinding.
• Out of the 15 sectors, 10 sectors gave positive returns in last 1 year, while 5 gave negative returns. The 15 sectors gave average returns of 7.9% in last 1 year, 19.3% CAGR over 3 years, and 29.9% CAGR over 5 years. The 5-year returns may be skewed due to the COVID base. While the top-5 sectors gave 20.5%, bottom 5 gave -5.1%.

HOW SECTORAL INDICES FARED ON RISK IN LAST 1 YEAR?

Returns are one side of the coin. Here is a look at the risk perspective.

Sectoral Index	1-Year Volatility	1-Year Beta	1-Year Correlation	1-Year R2
Nifty Realty	31.58	1.49	0.73	0.53
Nifty PSU Bank	30.20	1.40	0.72	0.52
Nifty Media	28.14	1.06	0.58	0.34
Nifty Metal	27.75	1.42	0.79	0.63
Nifty Oil & Gas	24.86	1.29	0.81	0.65
Nifty Non-Banks	22.82	1.24	0.85	0.72
Nifty IT	22.72	0.89	0.61	0.37
Nifty Auto	21.34	1.11	0.81	0.66
Nifty Consumer Durables	19.80	0.90	0.70	0.49
Nifty Financial Services	18.40	1.05	0.89	0.79
Nifty Bank	18.06	1.02	0.88	0.77
Nifty Private Bank	17.92	0.98	0.85	0.73
Nifty Pharma	17.37	0.63	0.56	0.32
Nifty Healthcare Index	16.63	0.63	0.59	0.35
Nifty FMCG	15.05	0.49	0.50	0.25

Data Source: NSE Indices

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

• In terms of standard deviation of returns; Realty, PSU banks, and metals remain most volatile in last 1 year. That also corresponds with the worst 1-year returns, indicating that steep valuations are getting specifically unwound. Over a 5-year timeframe higher volatility in the above 3 sectors has been compensated by above normal returns. Healthcare remains the only sector to give top class returns despite low volatility.
• The 15 sectors had average volatility of 22.21% and average beta of 1.04, which approximately reflects Nifty. A total of 9 of the 15 sectors were aggressive with beta of more than 1. FMCG, healthcare, and IT are the best portfolio diversification bets, due to low correlation with Nifty; and the low return explanation factor.

SECTORAL INDICES AND THE VALUATION PLAY IN LAST 1 YEAR

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

Sectoral Index	Price/Earnings (P/E Ratio)	Price / Book (P/BV)	Dividend Yield
Nifty Consumer Durables	69.62	15.16	0.42
Nifty Realty	46.62	5.49	0.38
Nifty FMCG	43.70	10.58	2.58
Nifty Healthcare Index	36.14	5.96	0.53
Nifty Pharma	30.70	5.26	0.65
Nifty IT	27.89	7.67	3.03
Nifty Auto	24.25	4.94	0.93
Nifty Non-Banks	24.15	3.79	0.94
Nifty Metal	19.64	2.66	1.94
Nifty Private Bank	17.60	2.40	0.33
Nifty Financial Services	17.51	3.00	0.55
Nifty Bank	14.63	2.33	0.68
Nifty Oil & Gas	13.71	1.70	2.70
Nifty PSU Bank	7.07	1.30	2.21
Nifty Media	0.00	1.39	0.92

Data Source: NSE Indices

Here are key takeaways from the three valuation parameters.

• Consumer durables, Realty, FMCG, and Healthcare are still having the richest valuations. Post tariffs, there is a shift to domestic plays like FMCG and Consumer durables, so valuations may only get steeper. The sharp correction has made many sectors attractive in dividend yield terms. For instance, IT at 3.03%, Oil & Gas at 2.70%, FMCG at 2.58%, PSU Banks at 2.21%, and Metals at 1.94% stand out as Dividend Yield picks.
• The average P/E of all sectors stands at 26.2X, flat on a MOM basis. The average dividend yield looks relatively attractive at 1.25%.

Sectoral returns have shown positive traction in May 2025, although there are still pockets of steep valuations, that may not be justified by the present or forecast profit numbers.