India Perspectives - Resilient growth amidst global uncertainty

Highlights: We view India as among the more resilient economies globally, aided by the combination of strong domestic consumption focus, resilient high-frequency economic data and the expectation of some relief on tariffs through ongoing negotiations with the US. We retain our mild overweight stance on Indian equities and Indian local currency bonds. We are neutral on INR and expect USD/INR to remain largely range-bound.

• We expect India’s GDP to grow at 6.2 per cent in 2025 aided by the combination of strong domestic consumption focus, resilient high-frequency economic data and the expectation of some relief on tariffs through ongoing negotiations with the US. Improvement in rural consumption, lower oil prices and greater fiscal room due to RBI dividend are positive
• We now expect the RBI to cut rates by 75bps to 5.25 per cent by end-2025. Moderating food inflation, expectation of a healthy monsoon season and deflationary impulse from stronger INR and lower oil prices should lead the inflation to undershoot RBI’s target of 4.0 per cent. We expect the RBI to cut rates by 25bps in June MPC meeting
• We retain our mild overweight stance on Indian equities. We see signs of turnaround in earnings trajectory, robust GDP growth and superior RoEs offsetting valuation concerns. Resilient domestic investor-base, recent foreign investor flows and seasonality point towards supportive technicals.  We favour Large-cap stocks as we believe they are better positioned to navigate the uncertain environment. Given the elevated global uncertainty, we like more domestically oriented sectors and favour the Financials, Healthcare and Industrial sectors
• We are bullish on Indian local currency bonds and expect 10-year government bond yields to edge lower towards 6.0 per cent by end-2025 aided by a combination– (i) further RBI rate cuts, (ii) manageable net supply (iii) robust demand from both domestic and international institutional investors. As a result of the shift in our USD expectation, we expect a more favourable backdrop for the INR. We now expect USD/INR to end 2025 around 86.0