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Giving an outlook of the Indian economy for CY 2025, ITI MF, which has recently crossed the Rs. 10,000 crore AUM mark, said that the fund house is optimistic about the performance and conditions in the Indian economy in CY 2025.
Rajesh Bhatia, CIO, ITI MF said despite challenges posed by sticky inflation, weaker than expected Q2FY25 earnings, general elections outcome, FII outflows and global geopolitical uncertainty, Indian equity markets remained resilient for a major part of CY 2024.
Commenting on the outlook for the economy, the fund house highlighted key indicators for the positivity about the Indian economy;
- Uptick in Goods and Services Tax (GST) collections
- Favorable kharif crop sowing numbers
- Strengthening rural demand
- Purchasing Managers' Index (PMI) in good shape
- Exports showing positive momentum
- Since FY 2020, market Cap and PAT have witnessed a CAGR of 36% and 39%, respectively
- Expected fiscal deficit in March 2026, at 4.5% of the GDP, is expected to be the lowest since March 2019
The fund house further said that the headline inflation in India is expected to average 4.2% year-on-year in the 2025 calendar year, with food inflation at 4.6%, thanks to adequate rainfall and good sowing of the summer crop although, the food supply shocks due to weather-related disruptions remain the key risk to this forecast.
Sharing his views, Rajesh Bhatia said, “Indian equities are expected to perform strongly in the coming year. In the short term, though, slowing economic growth, high starting valuations and weak earnings-per-share revisions could keep markets rangebound. We believe that sectors like private banks, IT, digital commerce, capital goods & pharma, etc. may have a clearer path to stronger earnings and are expected to perform well.”
Here are the key themes that are expected to play out in the coming year:
- In 2025, the private sector investment is projected to hit a decadal high of Rs. 55,122 billion, indicating a broad-based growth phase that could accelerate in the coming years
- The gap between bank credit growth and deposit growth is narrowing and it is expected to ease margin pressures
- The banking sector’s strong return ratios and improving capital adequacy levels are expected to reduce the need for fresh capital infusion. Reasonable valuations of the private sector banks suggest stability and long-term potential
- The IT sector in India is driven by increasing investments in emerging technologies such as Artificial Intelligence (AI), blockchain, and cybersecurity. Further, cloud services are expected to see continued demand, positioning India as a significant global player in the technology ecosystem
- Continuous growth in healthcare and pharma sector - India is a major producer of pharmaceuticals and medicines which is why it is well positioned to meet the growing global demand for healthcare services
- The capital goods sector, which includes sub-sectors like electrical equipment, plant equipment, and mining machinery, is also expected to benefit from the government's higher infrastructure spending and initiatives like the Production Linked Incentive (PLI) scheme
Potential risks
- Impact of US economy is a potential risk for the performance in CY 2025. 8% budget deficit at a time of almost full employment will result in high interest rates which, in the long duration, may impact the growth potential
- Monsoon still plays a very important role in the agricultural output in India; unfavorable monsoon can disrupt the momentum of the economy
- Escalation in the geo-political fabric across the world may impact the global trade which will show its impact on the Indian economy
- The world is going through a high inflation phase, which may lead to a chain reaction of lower demand-higher cost of production, prospective losses and unemployment
