Market strategy for the year 2025

India’s GDP print came in lower than expectations at 5.4% substantially lower than 6.7% recorded in Q1 FY’25 and 8.1% in Q2 FY’24 seems mainly by a slowdown in government expenditure and capital formation.

- Satish Ramanathan

As we enter 2025, we see the following key issues for Indian markets:

• Economic and corporate earnings slowdown
• Government expenditure decline
• Inflation and Central Bank action
• Corporate Slowdown

Economic and corporate earnings slowdown - temporary?

• Manufacturing activity growth declined to a mere 2.2 % YoY as compared to 7.0% in the previous quarter and 14.3% in the previous year. Some of the slowdown can be attributed to weaker exports. Growth momentum in gross fixed capital formation has slowed with incrementally lower growth seen in the last four quarters. Notably, private consumption expenditure, which accounts for 56% of the GDP basket, grew by 6.0% in Q2 FY’25, lower than 7.5% in Q1 FY’25 but substantially higher than 2.6% in Q2 FY’24.

Central Government’s capital expenditure in October 2024 stood at Rs. 51,579 Crore, a decline of 8.4% y-o-y. On a Fiscal Year to Date (FYTD) basis (April 2024-October 2024), capital expenditure has contracted by 14.7% compared to a growth of 33.7% in the corresponding period of the previous financial year. Key ministries which accounted for 90% of the budgeted capex for FY’25 noted a y-o-y decline, except for the Ministry of Housing and Urban Affairs.