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2024 may be remembered as a year of pivotal shifts, with global economic and geopolitical turbulence, including inflationary pressures, weak Q2FY25 earnings and trade tensions. Amidst these challenges, India’s equity markets stood strong with the Nifty 50 and Sensex posting impressive gains of 14.32% and 12.55%, respectively. Despite persistent global uncertainties, India remains relatively insulated, buoyed by strong GST collections, favourable crop sowing data and rising rural demand. The positive trajectory in PMI and exports further supports growth expectations as India continues to defy broader global slowdowns.
As we approach 2025, elevated volatility is expected but India's economic fundamentals provide optimism for resilience in the face of external pressures. Growth in the first half of 2025 could face several challenges but with easing conditions expected later in the year, the outlook could improve. A key factor contributing to a positive economic outlook is the anticipated pickup in corporate earnings, driven by capex expenditure from both central and state governments, which will stimulate investment and growth across sectors.
Source: Care Edge, HSBC research report. Data as on November 2024. Past performance may or may not be sustained in future and is not a guarantee of any future returns and should not be used as a basis of comparison with other investments.
How does 2025 look like:
We expect following events to be driving global growth:
- Tense geopolitical environment, inward looking trade policies
- Easing global monetary policy stance resulting in expansion in economies; albeit at a slower pace
- Foreign Investors testing Indian markets as US and other markets becoming attractive; counter support by DIIs to be watched out for
- A tug-of-power between demand and supply forces with likely the latter dominating the course for CPI inflation
- Government may lead the spending which will trickle down in multiple sectors
- Timing and quantum of RBI MPC’s rate cuts will be determined by local realities and the rupee
While the above may be true for most economies, India’s real GDP growth in 2025 remains positive, with a projected growth rate of 6.5% as per Reserve Bank of India. Market participants expect India to become the third-largest consumer market in a few years and the third-largest economy by 2027, only behind US and China. India's headline inflation would also remain well within RBI’s comfortable zone, supported by favourable monsoon and strong crop sowing outcomes. As a result, some sectors are expected to fare better than others with those that struggled in 2024 anticipated to rebound in 2025.
- Financial Services – Private Banks: The banking sector, particularly private banks, have shown strong resilience. The gap between credit and deposit growth is narrowing, which may give elbow room for growth aiding in improving margins. The sector’s improved capital adequacy and strong return ratios provide stability and long-term growth potential.
- Information Technology (IT): India’s IT services sector looks forward for sustained growth, driven by increasing investments in AI, blockchain, cybersecurity and cloud services. The adoption of generative AI has been fast and we expect 2025 may be a year in which it becomes mainstream. Increased AI usage, the associated greater use of data centres and ongoing electrification of the consumer, industrial and transport sectors, will push up electricity demand.
- Digital Commerce: Driven by rising internet use, fast deliveries and urban demand, India’s Quick E-Commerce market is poised for ~ US$ 20 billion.
- Healthcare and Pharma: Increasing healthcare needs, export potential and advancements in biotechnology and generic drug production is expected to shape this sector up.
- Capital Goods: The capital goods sector looks to benefit from higher infrastructure spending and government initiatives like the Production Linked Incentive (PLI) scheme, which are expected to strengthen manufacturing capabilities and drive growth in the industrial base.
- Consumption: Wage growth, employment trends, accumulated savings, wealth effects and falling interest rates are, in varying degrees, supportive of consumer spending in 2025.
Domestically, India is expected to continue to stand out as a bright spot in the stagnant global growth situation, benefiting from strong demographic trends, political stability and stable macroeconomic indicators. The economic reforms implemented a few years ago have started yielding positive results, as evidenced by robust tax collections, improved quality of government expenditure with a focus on infrastructure and a boost to manufacturing through the Production Linked Incentive (PLI) scheme and other measures. In contrast, many other large emerging economies such as China, Brazil, Taiwan and Saudi Arabia are grappling with growth or geopolitical challenges. This positions India to attract a significant share of global capital flows into emerging markets.
As we step into 2025, India’s macroeconomic fundamentals, structural reforms and increasing role in the global supply chain could set the stage for sustained progress. While challenges such as inflationary pressures and geopolitical risks persist, India’s relative stability and growth potential position it as a promising destination for investors worldwide. The upcoming year holds the promise of further consolidating the gains of 2024, reaffirming India’s status as a beacon of growth and resilience in a complex global landscape.
Source – Bloomberg, RBI, MOSPI, ICRA MFI Research.
Alok Ranjan is the Senior Fund Manager of ITI AMC. The views expressed in this article are those of the author and do not reflect the views of Cafemutual
