- RBI cuts REPO rates with a view to maintain liquidity and keep consumer demand levels up.
- Depreciation of Indian Rupee – largely a factor of increasing demand for Dollars and FII’s cutting demand towards Indian Markets.
- Strong Consumer demand and record high bullion prices leading to rising GDP remain favorable factors.
Markets have been driven by growth and buoyancy. Domestic demand and consumption remain robust; consumption’s share of GDP at ~61.4% shows a structural tilt toward household-driven growth. Investment activity, though not the main driver, remains stable — supporting a balanced growth base beyond consumption. Policy environment (favourable tax/GST reforms, infrastructure push) seems supportive of demand and long-term growth. Overall growth continues to remain consistent despite challenges.
The chart below highlights the growth of consumption, capital investments and government expenditure in India over the years.
The growth rate of private final consumption expenditure (PFCE) in FY25 was 7.2%, compared with 5.6% in FY24. This indicates a clear acceleration in consumption demand. Meanwhile, the broader economy appears solid: in FY 2024–25, real GDP is estimated to have grown about 6.5%, while nominal GDP grew around 9.8%. The shift suggests that more than half of India’s GDP is increasingly being powered by what people spend — a domestic consumption-driven growth model. These numbers indicate a structural shift: consumption, rather than investment or exports, is once again the dominant engine of growth for India.
Inflation (particularly consumer price inflation) has moderated — creating room for monetary easing by the Reserve Bank of India (RBI). The favourable inflation environment combined with growth momentum has emboldened markets and policymakers, supporting investment, consumption, and capital flows.
While current debt levels might be manageable, rising private credit demand (especially if fuelled by rate cuts) could stress asset-quality if incomes do not keep pace. With inflation under control and central bank likely to remain accommodative (or at least not hawkish), fixed income — especially government bonds — could offer relatively stable returns. Interest-rate sensitive sectors (housing, consumer financing, corporate capex) may benefit from a favourable rate environment, boosting credit demand and economic activity.
Overall, we think that valuations could stay elevated relative to emerging-market peers, but earnings growth and improving macro-fundamentals may justify a premium — especially if global conditions remain stable. Volatility is likely, especially if global cues sour, commodity prices swing, or foreign portfolio flows (FPIs) become fickle.
India’s economic and market outlook for the near-to-medium term remains broadly positive. With strong fundamentals, supportive policy environment, structural reforms, and growing domestic demand, India is well placed to remain among the fastest-growing major economies globally. At the same time, given the uncertainties — global macro-economic risks, volatility in external factors, structural bottlenecks – the policy environment must stay vigilant.
If these conditions hold, India could sustain 6–7% real growth annually, gradually transform economically, and emerge as a key global economic powerhouse — given of course; consistent effort, reforms, and responsivity to changing global and domestic dynamics.
