India Steers Through Global Economic Slowdown with Resilience

Global economic growth is on the brink of deceleration, with powerhouses like the US and China poised for sharp slowdowns. However, India is defying the trend, remaining resilient, suggests a report by Kotak Alternate Asset Managers. The US economy may slow by 90 basis points, while China could see a 60-basis-point reduction. Despite this, India is expected to maintain its status as the fastest-growing major economy.

A key indicator of India's economic strength lies in its robust manufacturing activity. The country's Purchasing Managers' Index (PMI) numbers showcase strong momentum, setting India apart from many global peers. Even with mixed signals from high-frequency indicators, India's macroeconomic outlook remains healthy. Although credit growth and government spending have shown some decline, other positive developments are buoying the economy.

The report notes a favorable monsoon forecast, likely to boost rural demand and improve the inflation outlook, providing support to agriculture. Despite softer-than-expected fourth-quarter earnings for FY25 and geopolitical tensions, Indian equity markets have rebounded sharply from recent lows, demonstrating resilience.

Domestic institutional investors remain net buyers, and foreign portfolio investors have turned net buyers for the second consecutive month. Declining risk premiums on Indian assets have bolstered equity valuations. However, the report warns that markets may stay volatile amid ongoing geopolitical uncertainties.

The Indian Rupee continues to appreciate against the US Dollar, aided by several factors such as a weaker dollar, renewed FPI inflows, and sinking oil prices, which have improved India's trade balance. Despite this, the Reserve Bank of India capitalized on the currency's strength to bolster foreign exchange reserves, now surging by USD 50 billion to reach USD 688 billion in just two months.

Looking forward, the narrowing yield gap between Indian and US 10-year government bonds, along with persistent USD weakness, is expected to keep the Indian rupee strong in the near term.

(With inputs from agencies.)