India’s Economy: Resilient Amid Global Uncertainties and Poised to Lead Emerging Markets in 2025

In recent years, despite economic and global insecurities and turbulence, India’s economy has consistently been standing its ground on resilience and development. In recent times, two reliable reports have been staged to bolster this connotation, one published by Goldman Sachs and the other by Morgan Stanley.

Goldman Sachs Report
A new Goldman Sachs report published on 10th December 2024, forecasts the reaffirmation of India’s economy to remain firm. This report comes despite of numerous uncertainties owing to India’s solid macroeconomic fundamentals and strategic reforms. This positive posture has been reflected by various financial institutions thus positioning India as a strong leader among the emerging markets in 2025. At the core of this stability, India has been able to achieve sound macroeconomic management. The Reserve Bank of India has managed fairly well in terms of controlling inflation while ensuring overall financial stability. Governor Shaktikanta Das, in this way, noted that India is, in his opinion, “well positioned” to cope with external shocks due to the country’s policies, decent levels of foreign exchange reserves, and external debt.
Economists at Goldman Sachs predicted that India’s GDP would increase by an average of 6.5% between 2025 and 2030. Their 6.3% projection for 2025 is 40 basis points lower than the consensus of analysts polled by Bloomberg. The slowing growth rate is due, in part, to diminishing public capital expenditure growth. According to budget predictions, the Indian federal government’s capex growth fell from a CAGR of 30% per year between 2021 and 2024 to mid-single digits in nominal terms in 2025.
Credit is slowing

Credit is also shrinking. Total private sector loan growth in India peaked in the first quarter of the 2024 calendar year and has slowed in the past two quarters. The slowdown was primarily caused by a decline in bank credit growth to roughly 12.8% as of October, down from more than 16% in the first quarter of this year. In particular, household credit growth in unsecured personal loans slowed after the Reserve Bank of India tightened retail loan standards in November 2023.
Inflation Factor

Headline inflation in India is predicted to average 4.2% year on year in 2025, with food inflation at 4.6%, significantly lower than our analysts’ prediction of 7%-plus for 2024, thanks to ample rainfall and robust summer crop sowing. Food supply shocks caused by weather-related interruptions remain the most significant risk to this prediction. So far, excessive and erratic food inflation, primarily driven by vegetable prices due to weather shocks, has prevented the RBI from relaxing monetary policy. Core inflation should be around the RBI’s objective of 4% year on year in 2025, with the likelihood of inflation falling if US tariffs force Chinese firms to reallocate products to regional markets. The RBI has managed fairly well in terms of controlling inflation while ensuring overall financial stability. Governor Shaktikanta Das, in this way, noted that India is, in his opinion, “well positioned” to cope with external shocks due country’s policies, decent levels of foreign exchange reserves, and external debt.

Market Outlook
A separate analysis from Goldman Sachs Research predicts that India’s equities would perform substantially in the medium future. In the short term, however, sluggish economic growth, high beginning values, and negative earnings-per-share revisions may keep markets rangebound. Goldman Sachs equity experts believe the benchmark NIFTY index will reach 27,000 by the end of 2025. They also predict MSCI India earnings to expand by 12% and 13% in 2024 and 2025, respectively, falling short of consensus expectations of 13% and 16%. The MSCI India index of companies is trading at a 23x forward P/E multiple, which is much higher than the 10-year average and higher than our strategists’ top-down fair value estimate of 21x, implying more de-rating risk.

Further, the report remains neutral on Indian stocks in the short term, but sees potential in local sectors such as automobiles, telcos, insurance, real estate, and e-commerce, which may have a better path to higher profitability.

Morgan Stanley Report
According to Morgan Stanley’s India Equity Strategy Playbook, India will be among the top emerging markets by 2025. As a result, the BSE Sensex is expected to reach 93,000 by December 2025, a growth of around 18%. The researchers deem India’s value multiple high because over the next four to five years India is expected to record profits growth at an average rate of 18-20% on a yearly basis coupled with macroeconomic stability and a large pool of domestic risk capital. A gradual increase in the level of protection against global market volatility is verified by the fall in the correlation between the returns on India’s equities and the world’s stock markets.

Market Sentiment
Factors that determine the sentiment such as Morgan Stanley’s in-house sentiment index portray a neutral to buy market, which coincides with the bullish perspective of the team. Domestic mutual fund sources remain robust, especially SIPs, although other sources not belonging in that category are slowing down. On the other hand, foreign equity portfolio inflow is favorable, while outflow in debt portfolio is unfavorable. Sensex earnings are predicted to expand at an annualized rate of 17% through FY27, with corporate profits as a percentage of GDP on the rise. Profitability measurements like return on equity (ROE) show a positive cycle. Corporate debt is expected to reach 58% of GDP by 2025, with a positive nominal growth outlook notwithstanding market expectations for low growth.

US- India Relations
The gap between real GDP growth and the 10-year bond yield points to a positive prognosis for stocks. Indicators such as the policy certainty index, which has declined from pre-election levels, and the favorable real policy rate gap with the United States also help equities performance. Short-term interest rate and yield curve trends suggest that equities returns may moderate in the next 24 months, while earnings growth in the high teens is predicted during the next year. Global investors are likely to find relative safety in India’s financial markets as a result of Donald Trump’s economic plans, especially any protectionist trade policies that may cause emerging market turbulence. However, investors and analysts believe that India’s strong economic growth, minimal exposure to the Chinese and US consumer markets, healthy local appetite for equities, and a central bank committed to currency stability will boost the country’s appeal in the face of global uncertainty.

Conclusion
Thus according to these reports, India’s share of the EM and global indices is increasing, and its performance relative to China is improving. Household savings are shifting towards shares and away from gold, indicating increased confidence in financial assets.

The image added is for representation purposes only