Geopolitical tensions, a change of guard in the US; China’s easing policies, continued FII outflows and a resultant slowdown in growth. These are all factors that have been defining the Indian markets the last quarter of 2024. A slowdown in the Indian markets were visible starting September 2024, even as the government’s cash balance dropped to a deficit of INR 458 billion during the first week of December 2024. On one side, the annual GDP slowdown to 5.4% (as of November 2024) came as a shocker to the markets. But 2025 looks like it’s positioned differently in more than one way. With the election phase over, the government’s focus has shifted to larger sized infrastructure and technology projects that will lead to increased confidence and private capex spending. The post budget message comes in clearly too, with the government focusing on infusing liquidity through private capex spending.
Despite hopes that India’s domestic growth engine would be able to push through Global headwinds, increasing crude oil prices also played a bit of a spoilt sport before stabilizing in January 2025 owing to the Red Sea crisis.
Despite a slowdown in the GDP, rural consumption has remained robust, supported by strong agricultural performance (contributing 16% to the country’s GDP in 2024-25), while the services sector continues to be a key driver of growth. Manufacturing exports, particularly in high-value-added components (such as electronics, semiconductors, and pharmaceuticals), have displayed strength, underscoring India’s growing role in global value chains.
DII’s have continued to cushion the country from global uncertainties, thus reinforcing confidence in India’s demographic dividend and growing middle class wealth. Growing tax revenues is also likely to prove to be a major push. The support provided to consumption and manufacturing in the Budget 2025 will make the Indian market more balanced across sectors. Consumption growth should find further support if inflation cools in 2025.
The heatmap below shows the performance of all the indices as on February 7th, 2025.
India’s economic growth slowed in 2024, with gross domestic product (GDP) year-on-year growth of just 5.4% in the fiscal second quarter (July-September), the lowest in seven quarters. As a result, growth for the full fiscal year ending March 2025 will likely be 6.6%.
The growing consumer sentiment index is indicative of positive growth expectations as the central bank bring in additional measures to infuse liquidity into the system. The resumption of government spending, private sector capex growth and the resilience of domestic consumption, among other factors, may help India’s economy return to normalcy in 2025. As growth accelerates again, the stage is set for earnings recovery. Interest rate cuts and a moderation of the inflation target towards the 4% target will also likely spur growth recovery in 2025. Favorable demographics, the availability of skilled employees and the ability of the governments to create viable employment opportunities will also lead to a spurt in income growth and an increase in demand for premium offerings. Overall, we think that India will continue to grow despite the slowdown, at a much better pace as compared to peers.
