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India's economic growth cycle may be bottoming out, supported by a combination of favorable macroeconomic factors such as the interest rate and liquidity cycle, a decline in crude oil prices, and a forecast of a normal monsoon, according to a report by HSBC Mutual Fund.
The report highlighted that these supportive factors could help drive a pick-up in growth in the coming quarters. "We believe growth cycle in India may be bottoming out. Interest rate and liquidity cycle, decline in crude prices and normal monsoon are all supportive of a pick-up in growth going forward," the report stated. While global trade related uncertainties are expected to remain a headwind to private capital expenditure in the near term, the report expressed optimism over the country's investment prospects. The report expects India's investment cycle to be on a medium-term uptrend. This will be driven by sustained government spending on infrastructure and manufacturing, an increase in private investments, and a recovery in the real estate sector. In addition, the report pointed out that higher private sector investments in renewable energy and related supply chains, localization of higher end technology components, and India becoming a more meaningful part of global supply chains could support faster economic growth. On the markets front, the report noted that Nifty valuations have moved to a premium compared to their 5-year and 10-year averages following the recent rally. However, the fund remains constructive on Indian equities due to a robust medium-term growth outlook. The report also acknowledged the challenges in the global macro environment, including heightened geopolitical and economic uncertainties. A key concern it raised was the announcement of reciprocal tariffs by the US administration, which could significantly affect both US and global growth if the tariffs remain in place. Despite the challenges, the report stated that India's GDP growth has accelerated further to 7.4 per cent year-on-year in Q4FY25. The report also noted that the government has made efforts to address the slowdown in private consumption, particularly through income tax rate cuts announced in the Union Budget. With the US dollar weakening and crude oil prices declining, the report believed that the space for further policy easing has expanded. The forecast of an above-normal monsoon is also expected to be a positive driver for rural demand. (ANI)
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