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CareEdge Ratings said that it expects Indian government to continue on the path of fiscal consolidation and projects India's GDP growth to moderate but remain healthy at 6.5% in FY25 and 6.7% in FY26, in a webinar held on Economic & Sector Outlook for 2025.  Despite global uncertainties, CareEdge Ratings says India will continue to hold steady in 2025.

Sachin Gupta, Chief Rating Officer & ED, CareEdge Ratings, “The first half of FY25 paints a picture of cautious optimism within India’s corporate sector, where stability and resilience meet global challenges head-on. Amid the uncertain global environment, there is a lingering hesitancy among businesses to commit to long-term investments, as the anticipated boost in private capital expenditure is yet to materialise. However, we expect to see improvement in private investment in 2025, supported by anticipated monetary policy easing.”

Rajani Sinha, Chief Economist, CareEdge Ratings said, “Contraction in public capex, prolonged monsoon and weakening urban demand impacted growth momentum in H1 FY25. But we can expect the economic growth in H2 FY25 to rebound, supported by the recovery in consumption and a pick-up in government capex. Healthy agriculture production and robust services sector performance will be supportive of a rebound in GDP”.

According to CareEdge Ratings, CPI inflation is expected to moderate in the coming quarters. It expects food inflation to moderate, driven by a strong kharif harvest and favourable conditions for rabi sowing. CareEdge Ratings highlighted that CPI inflation excluding vegetable inflation has been below 4% in the last few months. The average CPI inflation is projected at 4.8% in FY25 and 4.5% in FY26.  Core inflation is expected to remain benign, averaging ~3.5% in FY25 and 4.3% in FY26. And WPI inflation is anticipated to average 2.5% in FY25 and 3% in FY26.

As far as government finances are concerned, net revenue collection will be aligned with the budgeted target. The weak corporate tax collection will be compensated by healthy income tax collection for the year. On the expenditure side, the Centre’s capex is likely to fall short of target by Rs 1.5 trillion.  Nominal GDP growth is projected to be lower at 9.9% as against budgeted growth of 10.5% for FY25. With lower capex, CareEdge Ratings project the fiscal deficit for FY25 at 4.8% of GDP, marginally lower than the budgeted 4.9%.

On the external front, CareEdge Ratings projects merchandise exports to rise by 2.5%, while, services exports are projected to record a strong growth of 13% in FY25. Further, encouraging performances in remittances is expected to continue.  Overall, CareEdge Ratings expects India’s current account deficit (CAD) to remain manageable at 0.9% of GDP in FY25.

CareEdge Ratings believes that the manageable CAD and high forex reserves should support rupee. However, a strong dollar and weak yuan are likely to put some weakening pressure. CareEdge Ratings expects Rupee to trade around 84 by end of FY25 and between 84-86 by end of FY26.

CareEdge Ratings expects RBI to cut policy interest rate by 50-75 bps in 2025, as food inflation moderates. It expects 10Y G-Sec yield to trade between 6.5-6.6% by the end of FY25 and between 6.1-6.3% by the end of FY26.

Sharing BFSI Outlook, Sanjay Agarwal, Senior Director, CareEdge Ratings said, “In banks, the credit growth slowdown is due to optical impact of merger, higher risk weights by RBI and a focus on managing the Credit to Deposit ratio. We expect the elevated Credit-Deposit ratio for Private Banks to moderate in the next 3-4 quarters”.

In banks, NIMs continue to remain under pressure.  However, banks have now started moderating deposit rates in line with lower growth aspirations. CareEdge Ratings believe banks credit costs have bottomed out and are likely to rise from hereon.

Similarly, in NBFCs also, the credit costs have bottomed out in FY’24 and are likely to rise from hereon.  In the unsecured asset classes, mainly in MFIs, deterioration in asset quality is very pronounced in FY’25. CareEdge Ratings expects the Credit cost to elevate significantly considering the ongoing MFI stress. It believes that the higher credit costs would impact profitability MFIs significantly in FY’25.

In Infrastructure, CareEdge Ratings expects Residential Demand in 2025 to remain resilient at decadal high with declining inventory overhang. The residential segment witnessed fastest recovery, with peak sales in 2023. This momentum sustained in 9M 2024 with y-o-y growth > 40%. Consolidation post RERA implementation, luxury segment gaining momentum, Green buildings catching steam, and robust collections drive deleveraging for top players are the top growth drivers.

According to Rajashree Murkute, Senior Director CareEdge Ratings, “The outlook for real estate is likely to remain stable, driven by double-digit growth in sales & launches, inventory at ~15 months, and debt-to-collection ratio under 0.80x for top listed players, all cumulatively supporting stable credit profiles. Though a key challenge will be the increase in land prices and construction cost, which may impact the affordability. Also, Govt./Developers initiatives to address the challenges in affordable housing segment needs to be monitored.”

On Office Leasing space, CareEdge Ratings expects it to hold ground amid global headwinds. Office leasing saw robust growth in 2023 & 9M2024. CareEdge Ratings expects the outlook for sector to remain stable, with supply and absorption expected to stay strong at 50+ msf and healthy occupancy above 80%.

On Air Travel, CareEdge Ratings expects passenger traffic to grow at 2x of GDP growth for FY25-FY26 and Capex thrust of ~ INR 40,000 crore over FY 2025-27 for Airports. It also sees a hike in tariff order & growth in non-aero revenue. It expects non-aero revenue to grow at 10-12% in FY25, a tariff hike in the range of 1.25x-2.25x for major PPP airports and expects Air-cargo to grow at 9%-10% in FY25 due to Red Sea crisis.

According to CareEdge Ratings, the National Highway (NH) pace of construction is expected to decline by 10% in FY25 while HAM project bids continue to witness elevated competitive intensity. However, it expects share of toll projects under revised MCA, to increase to 15-20% in FY26. Overall toll growth is estimated at 7% in FY25.

For Data Centre, CareEdge Ratings expects robust potential and stable outlook with Capex outlay pegged at ~Rs.50,000 crore for FY25-27. It estimates the colo DC capacity to double up by 2027 to ~2 GW and revenue estimate of ~30% CAGR for FY25-27. The leverage profile i.e Total Debt/ EBIDTA is projected to remain steady at 5x.

Sabyasachi Majumdar, Senior Director CareEdge Ratings highlights, “We expect capacity addition and domestic manufacturing to gain pace in Renewable sector. Wind segment is in revival mode through wind and hybrid tenders due to growing power demand in non-solar hours. For thermal generation, we expect improved outlook with demand growth and limited capacity addition.”

In Hospitality, CareEdge Ratings estimates pan-India branded-hotel RevPAR to be at INR 5,200-5,400 in FY25, against INR 4,900-5,000 in FY24, registering a Y-o-Y growth of 8-9%. FY25 revenue is expected to increase by 8-9% Y-o-Y for the sector. It expects demand to register growth at 8-9% while supply to be at 4-5% for next couple of years. India currently has approximately 166,000 branded hotel rooms/keys. The industry is expected to add a capacity of approximately 55,000 rooms in the next 5 years which is 33% of existing Inventory.

Ranjan Sharma, Senior Director CareEdge Ratings says, “The automobile sector has exhibited a mixed trend in H1FY25. While the 2W industry has zoomed ahead at a healthy y-o-y growth rate of ~16% primarily driven by strong rural demand on the back of higher rural income levels, the PV industry after witnessing healthy growth in past 2-3 years, has entered the slow lane during H1FY25 with wholesale volume growth slowing down to ~2% on y-o-y basis due to subdued demand for entry-level cars and elevated inventory levels at dealer’s end. While 2W volume growth is expected to remain healthy during FY25, overall PV volume growth is expected to continue to remain muted in FY25.”

On Steel, CareEdge Ratings says that profitability of the steel players remained under pressure in H1FY25 on account of decline in sales realizations due to increase in imports and decline in exports. India became a net importer of steel in H1FY25 vis-à-vis H1FY24. CareEdge Ratings believes that there could be marginal improvement in spreads in H2FY25 on the back of increase in demand with expected pick-up in infrastructure activity; albeit overall spreads are likely to remain subdued in FY25. Also, secondary steel players are likely to be relatively more adversely impacted compared to the integrated steel producers.

In Pharma, it expects a healthy growth with improving margins.  Pharma industry witnessed a growth of ~ 9% during FY24 and it is expected to grow at 9-10% during FY25-FY26 to reach about $ 65 bn. Growing focus on complex and speciality drugs, opportunities arising from patent expiries and CDMO segment along with rising chronic diseases, are expected to support the industry’s growth, and the operating margins are likely to expand by 50-100 bps over next one year.

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