The Economy Observer : India’s Quarterly Economic Outlook – 4QFY25 by Motilal Oswal Financial Services Ltd
India’s Quarterly Economic Outlook – 4QFY25
Expect real GDP growth at ~6.5% in FY26
* India’s real GDP grew 6.2% YoY in 3QFY25, in line with the market consensus and despite substantial upward revisions in FY24. Following 9.2% growth in FY24, real GDP growth of 6.2% in the first three quarters of FY25 is not particularly weak. Considering recent updates and new data, we upgrade our real GDP growth forecast to 6.2% for FY25, fueled by 6.0-6.5% growth in 4QFY25. We also upgrade our forecasts for FY26/FY27 to ~6.5% each from 6.3% each earlier.
* At the same time, we reduce our headline retail inflation forecast to 4.7% YoY (from 5.1% earlier) in FY25, as it has already eased to 3.6% YoY in Feb’25. We keep our FY26 forecast almost unchanged at 3.8%, though we revise it up for FY27. Low inflation will certainly allow the RBI to be more relaxed in its monetary policy, although strong growth and an uncertain global economic environment will limit its ability to cut interest rates sharply.
* Lastly, although real GDP growth has been decent, India’s real investment growth was at an eight-quarter low of 5% YoY, and (nominal) investments were at a 12-quarter low of 30.5% of GDP in 3QFY25. Our estimates suggest that government investments (Center + states) grew 13.5% YoY in 3QFY25, household investments grew 5.5%, and corporate capex growth was subdued at just 3.8% during the quarter. Corporate capex, thus, continues to remain weak.
Changes to our economic growth forecasts since Dec’24 Real GDP growth: Considering recent updates and new data, we upgrade our real GDP growth forecast to 6.2% in FY25, led by 6.0-6.5% growth in 4QFY25. We also upgrade our forecasts for FY26/FY27 to ~6.5% each from 6.3% each earlier.
CPI inflation and interest rates: We reduce our headline retail inflation forecast to 4.7% YoY (from 5.1% earlier) in FY25, as it has already eased to 3.6% YoY in Feb’25. We keep our FY26 forecast almost unchanged at 3.8% but revise it up for FY27. Low inflation will certainly allow the RBI to be more relaxed in its monetary policy, although strong growth and an uncertain global economic environment will limit its ability to cut interest rates sharply.
Fiscal spending and deficit: Lastly, although real GDP growth has been decent, India’s real investment growth was at an eight-quarter low of 5% YoY, and (nominal) investments were at a 12-quarter low of 30.5% of GDP in 3QFY25. Our estimates suggest that government investments (Center + states) grew 13.5% YoY in 3QFY25, household investments grew 5.5%, and corporate capex growth was subdued at just 3.8% during the quarter. Corporate capex, thus, continues to remain weak.
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
