India’s long-term economic outlook remains strong, with the investment cycle projected to continue on an upward trend over the medium term. This growth is expected to be driven by government investments in infrastructure and manufacturing, an increase in private sector investments, and a revival in the real estate sector, according to a new HSBC report released on Friday.
Private Investments and Global Supply Chain Integration to Boost Growth
The HSBC Mutual Fund’s ‘Market Outlook Report 2025’ highlights that private sector investments in renewable energy and related supply chains, localization of high-end technology components, and India’s growing role in global supply chains will play a crucial role in accelerating the country’s economic expansion.
The report anticipates that these factors will contribute to faster growth rates, ensuring that India’s economy remains resilient despite global economic challenges.
Nifty Valuations and Market Trends
The report also provides an assessment of Indian equity markets, noting that following the recent correction, Nifty valuations are now in line with their 5-year and 10-year averages.
- The Nifty index currently trades at 18.1 times its one-year forward price-to-earnings (PE) ratio, which represents a 7% discount compared to its 5-year average and is consistent with its 10-year average.
- Valuations in Midcap and Smallcap segments have also moderated after experiencing a sharp correction in January and February 2024.
The report maintains a constructive outlook on Indian equities, emphasizing that the medium-term growth prospects remain robust, supporting continued investor confidence.
India’s GDP Growth and Government Spending Trends
Despite global geopolitical and economic uncertainties, India’s GDP growth has demonstrated resilience, improving to 6.2% year-on-year (YoY) in Q3 FY25.
According to the report, the government has taken measures to address slowing private consumption through income tax rate cuts announced in the Union Budget. However, it stresses that a revival in private capital expenditure (capex) will be critical, especially as government spending on infrastructure projects is beginning to moderate.
- Central government capital expenditure (capex) is expected to grow at just 7% (YoY) in FY25 and 10% (YoY) in FY26, indicating a slower rate of public investment growth compared to previous years.
- Given this trend, the role of private sector investments in driving economic expansion will be increasingly significant.
RBI’s Monetary Policy and Expected Rate Cuts
The Reserve Bank of India (RBI) has also taken steps to ease monetary policy, and the report anticipates further action in the coming months.
The Indian currency fared better in February 2024, following a sharp decline in January, thanks to RBI’s policy measures, including foreign exchange (FX) buy/sell USD swap windows.
On the monetary policy front, the Monetary Policy Committee (MPC) has focused on balancing growth and inflation concerns, and the report predicts that another 25 basis points (bps) rate cut is likely in April 2024.
“Based on the growth-inflation data, the MPC’s last policy decision, and meeting minutes, we believe the RBI-MPC will deliver another 25 bps rate cut at its April policy review while continuing to remain flexible in its liquidity strategy,” the report projected.
However, a third rate cut will depend on inflation trends, the monsoon forecast, and global economic developments, which will be closely monitored leading up to the June 2024 policy meeting.
Conclusion: India’s Resilient Economic Path
Despite global uncertainties, India’s long-term economic trajectory remains strong, supported by infrastructure investments, manufacturing growth, and increasing private sector participation.
With RBI’s accommodative stance on interest rates, steady equity market performance, and expanding role in global supply chains, India is well-positioned to sustain its growth momentum in the years ahead.
