Moneycontrol Pro Weekender | FY25 growth at 6.5%: What India's strong growth signals for investors

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Dear Reader,

This week’s big data point was, of course, the GDP growth for FY25, which came in at 6.5 percent, exactly as predicted by the government’s earlier estimate, by the IMF and by the RBI. The Q4 growth is 7.4 percent, the highest in the fiscal year. The government’s second advance estimate had implied that growth in Q4 would be 7.6 percent, so there’s a miss on that. But then Q3 growth has been revised up from 6.2 percent to 6.4 percent, which is why Q4 growth is pegged a bit lower now.

But let’s not quibble about a decimal point or two on the growth numbers. It’s worth noting that the March quarter was when US President Donald Trump started his campaign on tariffs, leading to a huge jump in uncertainty across the world. Apart from this upheaval, there were worries about the domestic economy too, with concerns about the uncertainty affecting capital expenditure, especially corporate capex. Corporate commentary on Q4 results also expressed concern about sagging urban demand. These fears led to many economists pruning their estimates, with the result that growth has been better than expected.

Seen from that perspective, India’s Q4 growth has been very resilient. In fact, gross fixed capital formation (GFCF) has moved up sharply in the fourth quarter. Year-on-year GFCF growth in the March quarter has been 9.4 percent, the highest since the second quarter of FY24. The contribution of GFCF growth to GDP growth in Q4 has been 42 percent, almost the same as the contribution of private consumption expenditure. Most of the increase in capex is very likely on account of the central and state governments stepping up spending after a pause on account of the elections.

But the biggest contributor to growth in Q4 has been the external sector. The contribution of Exports less Imports (X-M) was 50 percent. The primary driver of this growth has been the lower value of imports, a consequence of the fall in commodity, especially oil prices. Government consumption, valuables and discrepancies had negative contributions to growth.

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Manas Chakravarty

Group Consulting Editor|Moneycontrol

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Private consumption growth in Q4, at 6 percent year-on-year, has held up well, thanks to rural demand — growth in real gross value added in agriculture and allied sectors was a decent 5.4 percent.

Gross Value Added growth for FY25, at 6.4 percent, is the same as in the second advance estimates. Manufacturing growth in Q4 has been 4.8 percent, higher than in Q3, belying the slowdown seen in the manufacturing sector IIP data. Construction growth has been excellent, at 10.8 percent, the highest since the second quarter of FY24. The ‘Financial, real estate and professional services’ segment has shown a spurt in growth. Overall, the services sector has around the same growth as in Q3, which should have supported urban demand.

But the GDP numbers are yesterday’s news. The more important question is: What do these numbers say about the future? Especially when it is in this year that Trump’s increase in tariffs will have its full effect.

Both the RBI and the IMF have forecast that GDP growth for India in FY26 will be the same — 6.5 percent. It’s true that the tariff impact will take its toll on the external sector and the contribution of the external sector is likely to be much lower. On the other hand, the income tax cuts are likely to support consumption this fiscal. Lower inflation too should support consumption. The RBI’s bigger than expected dividend will provide more funds for the central government to spend on capex. As Gaurav Kapur, senior economist at IndusInd Bank points out, commodity prices are likely to stay low this fiscal year, supporting India’s external sector. And if monsoons are well-behaved, the monetary policy committee is likely to continue to cut rates. Kapur expects another 50-75 basis points of rate cuts this year, if inflation remains subdued. That should enable 6.5 percent growth to be achieved in FY26 as well.

What does all this mean for investors? The finance ministry’s Economic Review for April 2025 expressed it admirably -- ‘Ultimately, investors look both for absolute and relative strengths of an economy and the market to invest in. In that respect, the trade-related and other global uncertainties faced by India are faced by several other nations but most of them lack the advantages that India has: macroeconomic stability, fiscal policy that is focused on quality of expenditure and prudence delivering lower cost of capital to the country, a benign inflation and monetary policy backdrop and financial and corporate sectors with strong balance sheets. This may be no moment for self-congratulation, but equally, it is a moment to remember one’s strengths and leverage them to make oneself not just attractive but also indispensable to investors.”

And finally, the best song for the GDP data is perhaps Kanye West’s ‘Stronger’ which opens with the lines:

‘Work it, make it, do it
Makes us harder, better, faster, stronger.’

Cheers,
Manas Chakravarty

In case you missed them, here are some of the other stories and insights we published this week, apart from our technical picks in the equity, commodity, and forex markets:

Stocks

Can this home textiles player withstand the heat of US tariff uncertainty? Sky Gold & Diamonds, SP Apparels, Landmark Cars, Weekly tactical pick, India Inc to benefit from Aatmanirbharta goal in stealth aircraft procurement, Why this high-quality NBFC deserves a look from long-term investors,  Protean, V2 Retail: Can fashion flourish in semi-rural India? LIC, Concor, Cello World, This oral care major suffers from demand headwinds, competitive pressures, Galaxy Surfactants, MTAR Technologies, Bharat Forge, Leela Hotels IPO, Aegis Vopak Terminals, Ashok Leyland, Va Tech Wabag, Hindalco, NTPC, Blue Star, Bajaj Auto, Cummins India

Markets

Can data analysis help us catch a market bottom?

Retail investors are cashing out even as markets climb

Nifty 50 firms dividend payout second highest in the past 10 years

Financial Times

Can we ‘nudge’ our way to higher growth?

Court tariffs bombshell should inspire trading partners to defy Trump

When bitcoin is the business model, investors should beware

Stablecoins are bank deposits

The lessons from China’s dominance in manufacturing

Now is the time to reopen the Eurozone bond debate

There’s no back-to-normal for CEO pandemic perks

Companies and Sectors

ITC shareholders face equity overhang risk

The cautionary message from zero electricity prices

IndiGo’s record profits overshadowed by Gangwal’s stake sale, a signal to buy or a red flag?

What next for Waaree after withdrawal of US tax incentives for solar?

Rising fuel inventories at power plants should worry Coal India’s investors

Mid-sized firms are apple of a banker’s eye as EMI-induced purchases slow

What is a bleeding microfinance industry telling us?

Is the pace of EV adoption slowing in India?

Economy and Policy

IIP data confirm PM’s warning on foreign imports

In June, RBI has tough choices to make

India’s fourth largest economy status comes with a K-shaped reality

Can India use America’s MAGA moment to accelerate MIGA?

IBC showed big success in FY25, but its failures are bigger

RBI annual report: Gold is the standout performer for the central bank in FY25

RBI owes its profits to forex market volatility

Uptick in rural wages augurs well for consumption

RBI’s Rs 2.69 lakh crore dividend boosts fisc, but caution looms

RBI dividend transfers, pre and post Bimal Jalan panel

What are the characteristics of high performing states?

Pro Economic Tracker

Geopolitics and Geoeconomics

Military glory or political gambit? What Munir’s new title means for Pakistan’s future

Trump’s myopic view on trade deficits mars the future of transatlantic cooperation against China

Is Trump's tariff flip-flop causing a supply chain meltdown

Can stablecoin legislation help dollar regain its supremacy?

Tech and Startups

Startup Street: Is there a goldmine in India’s infrastructure sector?

Trump’s tariff threat to Apple’s India operations is a challenge, but not a crisis

Around 65% of organisations now run AI in production, says Dell’s top executive

AI threatens jobs of millions of Indians. What counter-measures should the government take?