It is with great pleasure that we present the third edition of our Annual Outlook. This edition ‘The World Turns Inward’ is inspired by how geopolitics is reshaping the global landscape.
The Trump is back in the White House and his focus is on “Making America Great Again” through the use of tariffs and prioritizing local manufacturing. Many countriesare now grappling with their own domestic challenges. The U.S. faces an all-time high debt of $36 trillion, while China struggles with economic growth issues and risingyouth unemployment. The Russia-Ukraine war shows no signs of resolution, and the Middle East continues to experience regional rivalries, with players like Saudi Arabia, the UAE, and the Qatar focusing on transforming into tourism hubs. Japan, Singapore, and several European nations are contending with rapidly agingpopulations. Meanwhile, neighbouring countries- Afghanistan, Sri Lanka, Pakistan, and Bangladesh face significant political and economic uncertainties, shifting the focus of almost every country inward rather than prioritizing broader regional or global development.
As we look ahead, 2025 promises to be a year of challenges and uncertainties on a global scale.
However, irrespective of global fluctuations, it remains undeniable that India will continue to be the fastest-growing major economy in 2025 and is poised to surpass Japan to become the world’s fourth-largest economy.
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Global Macros
United States
AI-Driven Growth: The US economy expanded by 2.7% in 2024, propelled by a robust job market, strong consumer spending, and significant advancements in AI. Continued AI adoption is boosting productivity and fueling corporate growth, with substantial investments anticipated throughout 2025.
Monetary Policy: The Federal Reserve continued its easing cycle, implementing a 25-basis-point interest rate cut in December 2024. This marked the third consecutive reduction, bringing the target range to 4.25%-4.5%.
Cryptocurrency Market: The SEC’s approval of Bitcoin and Ethereum ETFs triggered a significant rally in cryptocurrency markets.This landmark decision signals increased mainstream acceptance of digital assets, particularly with the Trump administration expressing support for their development. Bitcoin’s value surged over 120% in 2024, following a remarkable 151% return in 2023
Tech Dominance: The “Magnificent 7” –Apple, Microsoft, Alphabet, Amazon, Tesla, Nvidia, and Meta – collectively contributed more than half of the S&P 500’s returns in 2024, achieving a 65% year-over-yearincrease.
National Debt: The US national debt reached a staggering $36.13 trillion by December 2024, translating to a per capita debt of approximately $107,888.
Europe & UK
Monetary Policy: The European Central Bank(ECB) and the Bank of England (BoE) maintained a cautious approach to monetary policy, prioritizing inflation control while supporting economic growth.
Economic Growth: Eurozone GDP growth remained modest at 1.2% in 2024, with varying performance across member states. The UK faced significant economic challenges, including high inflation, leading to economic stagnation.
China:
China’s economic landscape in 2024 was marked by persistent challenges. The realestate crisis continued to weigh heavily onthe economy, with a significant decline in new house prices. Government stimulus efforts, aimed at stabilizing the property sector, failed to significantly boost consumer confidence, which remained at near-record low levels.
As per Rhodhium Group, China’s GDP growth in 2024 was 2.8%, significantly lower than official claims of nearly 5%. In August 2024, Japan witnessed a significant unwinding of the yen carry trade. This popular investment strategy involved borrowing cheaply in Japanese yen andinvesting the proceeds in higher-yielding assets elsewhere. However, the Bank of Japan’s surprise decision to adjust its monetary policy and raise interest rates made borrowing yen less attractive. This triggered a mass reversal of these trades, leading to a sharp yen appreciation and increased volatility in global financial markets.
In 2024, Japan’s economy experienced moderate growth, with GDP expanding at an estimated 1.2%, supported by robust export demand and government stimulus measures.
Central bank gold buying continued to surge in 2024. Notably, the Reserve Bank of India emerged as the second-largest buyer, in 2024. This trend reflects a growing preference for gold as a safe-haven asset and a diversifier for central bank portfolios.
In the energy sector, Brent crude oil averaged around $80 per barrel throughout 2024. This price stability was largely attributed to production cuts implemented by the OPEC+alliance.
Domestic Macros
- India’s foreign exchange reserves declined by $4.112 billion to an eight-month low of $640.279 billion during the week ended December 27.
- India, the second-largest buyer of gold in 2024, increased its gold reserves to 876 tonnes.
- Automobile retail sales grew by 9% year-on-year, driven by strong demand for two-wheelers and passenger vehicles. Total vehicle registrations reached 26,107,679 units in 2024, up from 23,928,293 units in 2023.
- Net direct tax collection grew 16.45% year-on-year to over Rs 15.82 lakh crore, driven by higher advance tax collections.
- The government collected Rs 21.51 lakh crore from GST between January and December 2024.
- Capex growth slowed from 9.0% in FY24 to 6.8% in 1HFY25, primarily due to a 15% year-on-year contraction in government capex spending in the first half of the fiscal year.
- The housing market remains robust, with inventories at their lowest level in 14 years.
- Private corporate capex is on the rise, driven by strong corporate balance sheets and investment opportunities in sectors such as power, electrification, Production Linked Incentive (PLI) schemes, and building materials.
- The Indian Rupee weakened by 2.8% in 2024, facing pressure from capital outflows driven by FPI withdrawals from Indian equities.
- A record 268 successful IPOs, comprising 90 on the mainboard and 178 on the SME platform, raised Rs 1.67 lakh crore in 2024, the highest number of IPOs in Asia and in Indian history, reflecting growing investor confidence in the capital markets.
- India’s demat account base has surged, now exceeding the population of countries like Russia, Mexico, and Japan, with over 18 crore accounts.
- Domestic Institutional Investors (DIIs) provided a crucial counterbalance to Foreign Portfolio Investors (FPIs), consistently adding inflows and amassing a total of US$59 billion.
- After robust inflows of US$20.7 billion in 2023, FPIs adopted a cautious stance in 2024, with modest net inflows of US$1.4 billion. Significant outflows totaling US$13.5 billion occurred in October and November.
- SIP inflows witnessed steady growth throughout the year, rising from Rs 17,610 crore in December 2023 to Rs 25,320 crore in November 2024.
- As of November 2024, the value of mergers and acquisitions (M&A) in India had increased 43.2% to $36.14 billion, compared to $25.24 billion in 2023. The number of deals also increased by 24.4%.
- The RBI left the repo rate unchanged in 2024, disappointing home loan borrowers, but introduced several regulations for the benefit of bank customers.
Markets
Nifty 50 delivered a modest annual return of approximately 9% in 2024, supported by a 16% growth in earnings.
The index reached a peak of around 26,250 in September 2024 but corrected sharply in October and November, ending the year at lower levels.
Midcap and Smallcap indices significantly outperformed Nifty 50, with returns of approximately 24% and 27%, respectively. The gains were primarily driven by multiple expansions rather than robust earnings growth, which remained relatively muted at 8% and 6%.
Top-performing sectors included Realty (+31%), Pharma (+30%), Capital Goods (+26%), and Power (+26%).
Gold emerged as a strong performer, providing a return of approximately 19% in 2024. This was driven by robust safe-haven demand and de-dollarization trends
The year was marked by heightened volatility due to geopolitical tensions, global economic weaknesses, elevated interest rates, and election-related uncertainties both in India and globally
India’s 2024 Growth: A Journey of Transformation
Battery electric vehicle production in India is set to reach 3,77,000 units by 2025, driven by major new model launches.
India’s atomic power capacity has nearly doubled from 4,780 MW in 2014 to 8,081 MW in 2024
India’s smartphone market is now the second largest by volume, driven by premiumization and significant year-on-year growth in value.
India has become the second-largest contributor to public generative AI projects on GitHub, with 108 million new repositories and 5.2 billion contributions, reflecting its rapid growth as a global tech leader.
India is leading the digital revolution, with financial technology driving digital payments, contributing to 10% of GDP, and expected to reach 20% by 2026, supported by robust digital infrastructure and AI talent.
India’s airline seat capacity is projected to grow by 12.7% in FY24 compared to pre-pandemic levels, ranking fifth globally, with countries like Saudi Arabia and UAE seeing faster recoveries.
India’s services exports are projected to surpass merchandise exports by 2030, driven by growth in IT services and other business services, with significant potential for expansion in underrepresented sectors.
Looking Ahead
The year 2025 presents a mixed outlook for the Indian economy and financial markets, driven by several domestic and global factors. Key developments and trends to watch include:
Macroeconomic Growth:
Consumption Revival: While urban consumption faces challenges from sticky inflation and high borrowing costs, rural consumption is showing signs of improvement, supported by a favorable monsoon and improved agricultural productivity
Capex Cycle Revival: Public infrastructure spending will sustain momentum, particularly in roads, railways, and renewable energy. The private sector is expected to contribute significantly as global supply chains increasingly shift to India
Monetary Policy: The Reserve Bank of India (RBI) is expected to initiate a rate-cutting cycle in CY25, potentially reducing rates by 25–75 bps, contingent on stable inflation. This policy shift could enhance credit availability, stimulate domestic liquidity, and support economic activity.
Equity Markets:
The Nifty 50 is trading around its long-term average, with promising upside potential driven by robust corporate earnings growth projected at a compound annual growth rate (CAGR) of ~15% between FY25 and FY27.
Mid and Small-Cap Stabilization: Following their strong performance in CY24, mid and small-cap indices are expected to stabilize as valuations normalize, offering selective opportunities for investors.
Positive sectors: Financials, infrastructure, healthcare, real estate, and consumer discretionary sectors are likely to benefit from structural reforms and recovery in demand
Key Global and Domestic Risks
Geopolitical Developments: Trade policies under the Trump administration may disrupt global supply chains. However, India’s domestically driven economy is relatively shielded from such external shocks.
Energy Prices: The stability of crude oil prices will be crucial for managing inflation and maintaining healthy corporate profit margins. Escalating geopolitical tensions could impact foreign capital flows and lead to volatility in energy prices.
Global Fund Flows:
Anticipated rate cuts by the U.S. Federal Reserve are likely to ease global liquidity, potentially attracting foreign investments into Indian markets.
However, persistent foreign institutional investor (FII) outflows in secondary markets could remain a challenge.
Structural Opportunities: Catalysts for Long-Term Growth
Manufacturing and PLI Schemes: The government’s focus on production-linked incentive (PLI) schemes and India’s emergence as a global manufacturing hub are expected to drive growth in sectors such as industrials, electronics, and capital goods.
Technology and Digital Transformation: Investments in digital infrastructure and advancements in emerging technologies, including semiconductors and electric vehicles (EVs), are poised to unlock significant long-term growth potential.
