India Perspectives - Turnaround in sentiment

Highlights: While we expect India to be more resilient to the global trade tensions, we lower our 2025 GDP growth forecast to 6.2 per cent, considering the elevated risks to growth. We expect monetary policy to be supportive with RBI cutting rates to 5.5 per cent by end-2025. We retain the mild overweight stance on Indian equities owing to a confluence of supportive factors. Indian bonds yields are also likely to edge lower. We revise our INR forecast as it is expected to see less weakening pressure.

• We modestly lower our 2025 GDP growth forecast for India to 6.2 per cent (versus 6.3 per cent previously) as the downside risks to Global and Indian economy have increased despite the 90-day pause in imposition of reciprocal tariffs. We believe that Indian GDP growth is likely to be more resilient compared to most other Asian countries owing to India’s advanced stage trade negotiations with the US, thriving services sector, robust high frequency macro-economic indicators and more supportive monetary policy
• We expect the RBI to cut rates to 5.5 per cent by end-2025 with 25bps cuts in June and August meetings. Sharper than expected decline food inflation, expectations of subdued oil prices and less INR depreciation pressures lead us to expect inflation to average at 3.7 per cent in FY26
• We retain our mild overweight stance on India equities, despite their recent outperformance. Potential US-India trade deal, improvement in international flows, reorientation of supply-chains and stabilisation in earnings expectations, support the markets for now. We favour Large-cap stocks as we believe they are better positioned to navigate the uncertain environment. We favour the Financials, Healthcare and Industrials 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 (versus 88.0 previously)