Indian economy: India is projected to grow at 7.3 per cent in FY24 and 6.9-7 per cent in FY25, the report by Elara Securities said. The report also highlighted the government’s continued capex push going forward in FY25. The Reserve Bank of India has estimated India’s growth at 7 per cent in the ongoing fiscal. And the first advance estimate of growth put out by the National Statistical Office pegged India’s growth at 7.3 per cent, higher than the projected growth of the RBI.  Elara Securities sees weak domestic private consumption and trade risks as potential risks to growth in FY25. 

According to the report, rising domestic value addition in new-age sectors, reducing vulnerability to oil price shocks, and improving factor productivity amid the capex push are likely to be key triggers for India’s long-term growth trajectory. 

The report sees inflation at 5.4 per cent in the ongoing fiscal and expects it to cool down further to 4.5 per cent  in FY25. “Slowing core inflation and lower crude prices are key positives,” the report added further. Similarly, the fiscal deficit projected for FY24 is at 5.9 per cent. And the report expects the deficit target to be 5.4 per cent of GDP in FY25. 

The report said further that If the government does not relax its fiscal glide path, there is the possibility of government capex spending remaining flat between FY25 and FY26. 

Debt and current account deficit

India’s external sector is gaining resilience. “We see current account deficit at 1.5 per cent and 1.4 per cent of GDP in FY24 and FY25, respectively,” the report noted.

Incremental flows, easing policy rates, and normalisation in US rates may push India's 10-year yields lower to trade in the 6.8-7.15 per cent range in FY25. “We see USD-INR at 82.8 by end-FY24E and 81 by end-FY25,” it said. 

MPC rate cuts

We expect the MPC to cut the policy repo rate by 50-75bps for the full FY25 starting towards the end of the first quarter in FY25.  “The pivot by the Fed, rate cuts by the MPC receding fears of OMO sales, and continued surge in debt flows amid inclusion in JPM index/other indices may help yields to cool off towards H2FY25,” the report added further.