India Outlook 2025

Despite global headwinds, including high interest rates and volatile energy markets, India stood out as a beacon of stability in Asia in 2024. The economy demonstrated robust GDP growth, the stock market showed moderate gains, and bonds attracted foreign inflows. Against this backdrop, the India outlook for 2025 is optimistic.

India’s solid economic expansion, minimal reliance on Chinese and US consumer markets, strong domestic demand for equities, and a central bank committed to maintaining currency stability are expected to enhance the nation’s attractiveness to investors amid global uncertainty, according to analysts.

Compared to 8.2% GDP growth in 2023, India‘s economy is losing some steam but is still the fastest-growing major economy in the world. In January, India’s National Statistical Office (NSO) forecasted a GDP growth rate of 6.4% in the fiscal year 2024-2025 ending in March. This would be the slowest growth in four years. Also the Reserve Bank of India lowered its growth forecast to 6.6%, from its earlier prediction of 7.2%.

However, many economic observers believe the slowdown will only be temporary. Morgan Stanley highlights India’s remarkable ascent, projecting it to become the world’s third-largest economy by 2028, surpassing Japan and Germany. According to the analysts, the Indian economy will grow from $3.5 tn in 2023 to $5.7 tn in 2028. By 2029, the country’s share in the world GDP is expected to rise to 4.5%.

The re-election of Donald Trump in the United States has stirred up markets, and trade tariffs are expected to have the most significant impact on global markets. For India, UBS sees three challenges from trade tariffs: slower global growth, delayed private capex recovery due to China’s manufacturing surplus, and pressure on India’s trade balance from RMB depreciation. However, the investment bank notes that global policy shifts may also create opportunities, bolstering India’s role in ‘China + 1’ supply chain strategies over the medium term.

HSBC AM highlights that India, with its focus on domestic demand and limited reliance on U.S. exports, is among the least affected major economies by global trade disruptions. “Notably, there has been a gradual decoupling of India’s economic and financial markets from major global markets, including the US, Europe and Japan,” the asset manager notes in the 2025 Global Investment Outlook. “This has been demonstrated by a lower correlation of MSCI India with these major markets compared to the past five years, presenting appealing diversification benefits.“

India Outlook: Equities

India’s equity markets had a turbulent first quarter of 2025 so far, marked by significant volatility after a remarkable run in 2024. Following a series of record highs late last year, both benchmark indices, the BSE Sensex and the NSE Nifty 50, experienced sharp declines.​ The Nifty 50 index declined approximately 14% from its September 2024 peak, marking its longest losing streak since 1996. Therefore, India’s equity market outlook for the near term remains cautiously optimistic. Investor sentiment weakened primarily due to slowing GDP growth. 

However, optimism about India’s long-term equity market outlook remains intact. In their bull-case scenario, Morgan Stanley expects the Sensex to hit the 105,000 mark by the end of the year. This would be a rise of about 40% from current levels as of March 7, 2025. The base scenario sees the index up around 25%, while the bear-case scenario expects the Sensex to slide nearly 6%.

The most significant risks, according to Morgan Stanley’s report from March, are global factors including global economic growth and US policy changes. “A global recession or a near recession will challenge our call and keep the Indian equities off highs in 2025,” the report says.

Despite these short-term pressures, long-term optimism surrounding India’s economic and market potential remains robust. Martin Currie sees India’s journey far from complete. “With superior earnings growth forecasted for the coming years, Indian companies are poised to drive forward the broader asset class, promising exciting opportunities for investors,” the asset manager comments in a recently published insight.

According to the equity specialist within Franklin Templeton, the consensus forecast for the next three years estimates India will deliver “superior earnings growth for shareholders compared to the US and other developed markets”.

Eastspring Investments says India’s equity market presents a structural opportunity. “Ongoing reforms, rising urbanisation, and supply chain shifts are expected to support India’s economic and earnings growth over the longer term,” the asset manager states.

Kenneth Ng, Portfolio Manager with the Asian Equities team at Lion Global Investors, sees India as “one of the structural stories of the coming decade”. “India has given 14% compounded returns over the last twenty years, and we see enough catalysts for it to still repeat that in the next twenty,” the portfolio manager says.

India Outlook: Bonds

Investment experts believe that Indian bonds will perform well in 2025. “For 2025, foreign inflows into the Indian government bond market are expected to remain strong but may not match the record levels of 2024,” says Wei Li, Portfolio Manager at BNP Paribas Asset Management, citing inflation expectations, policy adjustments and global market fluctuations as reasons.

In February, the Reserve Bank of India (RBI) cut its repo rate from 6.5% to 6.25%. The first interest rate cut in nearly five years is expected to counter the slowing growth in Asia’s third largest economy.

In June 2024, JP Morgan began including Indian government bonds in its Emerging Market Global Bond Index (JPM GBI EM). Gradually adding 1% each month, Indian bonds will hold a total weight of 10% in the index upon conclusion on March 31, 2025. According to clearing house data, this triggered net inflows from overseas investors of about $14.5 bn.

Eastspring’s Asian Fixed Income Portfolio Manager Matthew Kok notes the stable income/carry potential of Indian government bonds. “They offer relatively higher yields compared to bonds from many other emerging markets. In addition, given their still-low foreign ownership level and strong demand from domestic insurance and pension funds, Indian government bond yields have demonstrated less volatility compared to US yields,” says Kok.

Schroders highlights that the ten-year local government bond yields in India (6.9%) are well-positioned to provide potentially high returns in 2025. “However, it’s important to consider active hedging of currency risks in these local bond markets, especially given the current strength of the US dollar and the potential for a renewed global trade war following the inauguration of the new Trump administration in early 2025,” cautions Abdallah Guezour, Head of Emerging Market Debt at Schroders.

With material from AsiaFundManagers.com.