India’s long-term economic outlook remains robust, with the investment cycle on a steady medium-term uptrend, according to HSBC Mutual Fund’s Market Outlook Report 2025, released on Friday. The report attributes this positive trajectory to government-led infrastructure and manufacturing investments, rising private sector investments, and a recovering real estate cycle.
The report anticipates increased private investments in renewable energy, high-tech manufacturing, and deeper integration into global supply chains, all of which are expected to accelerate India’s economic growth.
Following recent market corrections, the report suggests that Nifty valuations are now aligned with their five- and ten-year averages. “Post the recent correction, Nifty valuations are now in line with its 5/10-year average. We remain constructive on Indian equities supported by the more robust medium-term growth outlook,” the report stated.
Currently, Nifty trades at an 18.1x one-year forward price-to-earnings (PE) ratio, reflecting a 7% discount to its five-year average while aligning with its ten-year average. Additionally, valuations in the midcap and smallcap segments have moderated after sharp corrections in January and February.
Macroeconomic Challenges and Growth Outlook
Despite a challenging global macroeconomic environment marked by geopolitical and economic uncertainties, India’s GDP growth reached 6.2% year-on-year in Q3 FY25.
The report acknowledges that while the government has attempted to address slowing private consumption through income tax reductions in the Union Budget, private capital expenditure (capex) remains crucial for sustaining economic momentum. Government capex, which has been a key driver of growth, is expected to moderate, with spending growth projected at 7% year-on-year in FY25 and 10% in FY26.
The Reserve Bank of India (RBI) is expected to continue its efforts to support economic growth through monetary easing. HSBC projects another 25-basis-point rate cut in April, citing the growth-inflation balance and signals from recent Monetary Policy Committee (MPC) discussions.
“The real economy, as of now, has evinced resilience to global developments. Based on growth-inflation trends, the MPC’s last policy action, and the latest MPC minutes, we believe the RBI-MPC would deliver another 25 bps cut at its April policy while continuing to stay nimble and flexible on its liquidity strategy,” the report stated.
A potential third rate cut will depend on factors such as the inflation trajectory, monsoon conditions, and global economic developments, which will be key considerations for the RBI’s June policy review.
On the debt outlook, the report notes that after a sharp decline in January, currency levels showed improvement in February, aided by the RBI’s policy measures, including foreign exchange (FX) buy/sell USD swap windows.
-IANS
