Outlook for the Month of April’25

Economy Review

The key events in the month were –

1. Domestic Factors –

a) CAD – India’s Q3FY25 current account deficit (CAD) narrowed at $11.5bn (1.1% of GDP), from $16.7bn in Q2FY25, supported by moderating goods trade deficit, services trade surplus and remittances.

b) IIP – IIP growth in January’25 improved to 5.0% from 3.5% in December’24 due to a pickup in the manufacturing sector.

c) GST collection – GST collection in March’25 was Rs 1.96 tn, up 9.9% yoy.

d) Manufacturing PMI – India’s Manufacturing PMI rose to 8 month high in March’25 at 58.1, up from 56.3 in February’25.

2. Global Factors –

a) Tariff War – President Donald Trump laid out the U.S. reciprocal tariff rates under his new trade policy. A baseline 10% tariff on all exporters to the U.S. and additional duties on around 60 nations with largest trade imbalances with the U.S. that includes substantially higher rates on some of the US’ biggest trading partners, such as China, European Union and Vietnam. India is subjected to 26% tariff but pharmaceutical products are not subjected to tariff.

b) FOMC – The FOMC kept policy rates unchanged at 4.25-4.50% while retaining the projection of two rate cuts in CY2025.

c) Crude Oil – Brent crude oil prices remained benign at ~$74/bbl during the month despite OPEC+ unveiled plans to gradually unwind its voluntary production cuts on global growth concerns.

Domestic Macro Economic Data

Inflation – India’s CPI Inflation in February’25 moderated to 3.6% Vs 4.3% January’25 led by lower food prices. India’s WPI inflation marginally inched upto 2.4% in February’25 from 2.3% in January’24 primarily due to an increase in fuel and power prices along with higher costs in the manufacturing sector.

Outlook for Equities
FY25 ended on a soft note with Nifty up 5.3% yoy. Midcap and smallcap indices also saw moderate gains in FY25 of 5.0% and 5.4% respectively. Market sentiments was impacted by increasing tariff risks on the global economy, geo-political issues, FII outflows from EMs on dollar appreciation and cyclical softness in the domestic economy.

US has announced reciprocal tariff rates under his new trade policy. A baseline 10% tariff on all exporters to the US and additional duties on around 60 nations with substantially higher rates on some of the US biggest trading partners, such as China, European Union and Vietnam. India is subjected to 26% tariff but pharmaceutical products are not subjected to tariff. This will lead to lower global growth and higher inflation. On the domestic front, India’s Q3FY25 current account deficit (CAD) narrowed at $11.5bn (1.1% of GDP), from $16.7bn in Q2FY25. GST collection in March’25 was Rs 1.96 tn, up 9.9% yoy. We expect an economic revival to play out in the second half of this calendar year, led by the rural segment and stress in the lower end of the pyramid easing. FIIs bought equities worth $1.0bn and DIIs bought $4.3bn of equities in the month of March’25.

We expect Nifty earnings to grow at ~12-13% CAGR over the medium term. Nifty is currently trading at ~19x FY26e P/E and valuations have turned attractive. We expect some shift towards consumption based sectors from capex in the near term. Investors can continue to invest in equities from a medium to long-term perspective.

Outlook for Debt

March’25 was marked by several liquidity measures which led to bond market cheer and easing of tightness in liquidity. In addition to OMO purchases in January and February, RBI announced OMO purchase of Rs 1tn in two tranches for March and a 3-year tenor FX buy/sell swap auction of $10 bn. Since the December’24 policy, RBI has injected around Rs 4tn of durable liquidity through CRR cuts, OMO purchases and FX buy/sell swaps along with liquidity management tools such as VRRs. The April’25 OMO purchase calendar worth Rs 800bn also followed these measures. Durable liquidity is estimated to improve to over Rs 3tn by the end of Q1FY26 from around Rs 2tn currently.

The central government announced Government Securities gross borrowings of Rs 8tn in H1FY26 which is 54% of the total FY2026BE gross Gsec borrowings. This was along expected lines. Further, Q1FY26 gross short-term borrowing through T-bill was also announced at Rs 2.5tn. State development loans Q1 borrowing was announced for Rs 2.73tn slightly higher than expected. Goods trade deficit narrowed to $14.1 bn in February’25 from $23 bn in January’25. Exports fell and Imports also slowed driven by electronic goods, machinery and gold. Services trade surplus in February’25 was at $18.5 bn. February’25 CPI inflation decelerated to 3.6% YoY on moderation in food inflation, while core inflation inched up to 4%. Meanwhile, February’25 WPI inflation remained steady at 2.38%. IIP growth in January’25 improved to 5% due to a pick-up in the manufacturing sector. Center and states 11MFY25 fiscal accounts continued to highlight weakness in capital expenditure.

President Trump announced reciprocal tariffs of 26% on imports from India effective 9th April’25. He stated that the tariffs imposed on India were half of what India charged the US, i.e. 52%, factoring in trade and non-trade barriers and currency adjustments. Energy and pharmaceuticals are exempted from tariffs, while tariffs on automobiles is 25% for all countries. There are downside risks to growth both from the direct and indirect channels. A slowdown in US growth and weak global trade momentum will impact external demand. There is a downside risk of 30-60bps to India’s growth estimate of 6.5% for FY26.

The FOMC, kept policy rates unchanged at 4.25-4.50% while retaining the projection of two rate cuts in CY2025. Revising down GDP growth projections and increasing PCE inflation projections. The Fed also announced a slowdown in the pace of its balance sheet reduction. US 10 year remained range bound around 4.25% in March. Bank of England and Bank of Japan kept policy rates unchanged. Brent oil had dipped below $70/bbl but rebounded towards $75/bbl.

Markets in the near term await RBI MPC, lingering impact of reciprocal tariffs, oil prices, FPI flows and currency movements. Globally narrative on recession fears and stagflationary impact from tariffs will be watched along with measures from other countries. Commentary from Fed members and global central banks actions will be watched as well. Benchmark 10 year Gsec closed at 6.58% on 28th March’25 lower by 14 bps during the month. 10 year Gsec yield is likely to be in a range of 6.40%-6.60% in the near term. Spread of 10 year Gsec with corporate bonds is 42 bps and likely to remain between 40-50 bps.