Mumbai: The Economic Survey for 2024-25 on Friday warned that elevated valuations and optimistic market sentiment in the US are raising the likelihood of a meaningful market correction in 2025. "Should such a correction occur, it could have a cascading effect on India, especially given the increased participation of young, relatively new retail investors," the survey said. "Many of these investors that have entered the market post-pandemic have never witnessed a significant and prolonged market correction."The survey said the impact of a stock market decline on sentiment and spending may be "non-trivial". It pointed out that India's equity market has been notably sensitive to movements in the US market. The Nifty has historically shown a strong correlation with the S&P 500. In 22 instances between 2000 and 2024 when the S&P 500 dropped by more than 10%, the Nifty declined 21 times with average declines of 10.7%.Linkages between the two markets are more pronounced in a downturn, but that may not be the case when the market is on a strong footing. In 51 instances, when the Nifty dropped over 10%, the S&P 500 notched up gains on 13 instances.The survey said the surge in US stock market valuations to an "unattractive zone", currently at their third highest levels, as indicated by Shiller's S&P 500 CAPE ratio (Cyclically Adjusted Price-Earnings Ratio), warrants some caution. Further, the rally seen in the past two years has been largely driven by a few mega-capitalisation technology companies - Apple, Microsoft, Amazon, Alphabet, and Nvidia, it said. "This, along with tapering rate cut expectations, with the US Federal Reserve's dot plot now suggesting a 50bps (basis points) cut in 2025, down from the earlier guidance of 100bps, has added to the potential risks and uncertainties," the report said.According to the survey, the US financial landscape is characterised by "high stock market valuations, record corporate profits and extremely optimistic investor sentiment"."With the US comprising 75% of the MSCI World Index (as of November 2024), any correction in its market could have profound ripple effects on global markets, including India, underscoring the need for heightened vigilance," the survey said.