Economic Outlook

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Jan 08, 2024

QuantEco Research || India Macrobook Jan-24

Core Views: India’s GDP growth is expected to moderate in FY25 to 6.1-6.3% with slowdown in industry (support from price deflator fades) and services (urban consumption moderates) sectors both. Investment to fire on all cylinders in FY25, with private sector capex displaying greater vigour alongside healthy household capex and sustained albeit moderating government capex. CPI inflation to average at 4.8% in FY25. Dynamics on food inflation likely to govern the headline inflation trajectory, as fuel and core inflation to remain largely contained. Is India the goldilocks economy of 2024? - Resilience in growth sans inflation spike is possible as well as sustainable. Monetary policy would continue to remain cautious in a bid to anchor inflation expectations - we expect a shallow easing cycle with 50-75 bps rate cut in H2 FY25 along with liquidity supportive measures. Gradual disinflation, incremental progress on fiscal consolidation, India’s inclusion in global bond index, and a pivot in global monetary policy cycle would push 10Y g-sec yield lower towards 6.50-6.75% by Mar-25. While INR is likely to be buoyed by relatively strong economic fundamentals, monetary policy divergence and valuation could imply a moderate weakness towards 84.5-85.0 levels by Mar-25.