India’s current economic slowdown is not structural but cyclical, primarily caused by monetary and fiscal tightening, says a report by Antique. The report also highlighted that the slowdown in credit growth and reduced government capital spending, influenced by both Union and state elections, have played a key role in this deceleration.
However, these factors are now beginning to reverse, which is expected to support economic recovery in the coming quarters. It said, “The growth slowdown in India is more cyclical in nature, primarily driven by monetary (slower credit growth) and fiscal tightening (lower government capital spending due to union and state elections)”.
The recent policy measures will boost growth in the coming months. The report added “Off late both these factors have started reversing helped by higher government capex spending, resumption of a rate cut cycle (with another expected in April policy given benign food prices), liquidity injection, and tax sops, especially to the middle class”.
A significant boost to government capital expenditure, the expected continuation of the rate cut cycle, liquidity injections, and tax benefits, especially for the middle class, are likely to drive growth. With food prices remaining stable, another interest rate cut is anticipated in the Reserve Bank of India’s April policy meeting, further supporting economic momentum.
The report also mentioned that the Indian equity markets have experienced a correction of around 15% since their recent peak on September 26, 2024. This decline has been largely driven by substantial outflows from foreign portfolio investors (FPIs), who have been concerned about India’s elevated market valuations and a relative slowdown in domestic growth compared to other emerging markets.
In the last two quarters, earnings estimates for FY25 and FY26 have been revised downward by approximately 4 per cent and 3 per cent, respectively. However, following these adjustments, the Nifty 50 is now expected to witness a compound annual growth rate (CAGR) of around 14 per cent in earnings between FY25 and FY27, based on a low base. This projection appears reasonable given the improving domestic growth outlook.
Additionally, earnings growth for the broader market coverage in Q4FY25 is projected to be around 7 per cent, which analysts believe is an achievable target. The trend of earnings downgrades is also expected to slow down in the coming months, supported by a recovery in domestic growth and relatively stable earnings expectations. Overall, as monetary and fiscal conditions ease and economic activity pick up, India’s growth trajectory is expected to strengthen, alleviating concerns of a prolonged slowdown.
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