India’s growth cycle bottoming out, with indicators like interest rate and liquidity cycles supporting growth ahead: Report
According to the report, these several supporting factors indicate that economic momentum points to a potential recovery going forward.
“The growth cycle in India may be bottoming out. Interest rate and liquidity cycles, decline in crude oil prices and normal monsoon rains are supporting a forward recovery in growth,” the report said. The statement was included.
India’s investment cycle is expected to remain on an upward trend in the medium term, although uncertainty regarding global trade will continue to be a headwind for private capital expenditure (capex) in the near term, the report said.
This trend will be supported by government investments in infrastructure and manufacturing, a revival in private investments and a recovery in the real estate sector.
HSBC MF expects higher private investments in renewable energy and related supply chains, localization of high-end technology components and increased integration of India into global supply chains will contribute to faster growth. The report added that Nifty valuations are slightly above their 10-year average and remain constructive on Indian equities due to the more robust medium-term growth outlook. However, the report also noted several headwinds that could affect growth. Weak global growth is likely to remain a drag on demand in the near future. Additionally, global policy uncertainty, including tariff risk, mercantilist policies adopted by certain countries, and ongoing geopolitical conflicts, are expected to weigh on private investment sentiment.
Other potential risks identified by HSBC MF include a sharp slowdown in government capital spending.
Despite these challenges, the report highlighted many positive points for the Indian market. The recovery in private investment spending continues to be an important factor as industrial capacity utilization remains quite high, according to survey data from the Reserve Bank of India, indicating that private investment may increase going forward.
Additionally, the continued expansion of the Production Linked Incentive (PLI) scheme is expected to further boost private investments in targeted sectors.
The report concluded that high private capital investments in renewable energy and supportive domestic conditions are likely to sustain India’s growth momentum in the medium term.
