Indian stock market continue to see buying pressure after the elections. The Indian economy remains in strong footing after ten years of Governance under PM Modi. While the structural weaknesses like Unemployment, Lower Industrialization, Infrastructure woes and agri related distress remains, Indian economy is closing the gap fast.

The Global environment remains a challenge for the domestic economy. War in West Asia and Ukraine Continues to give supply chain disruptions frequently.

Despite a challenging global environment, the Indian economy showed remarkable resilience in FY24, with an annual GDP growth of 8.2%, surpassing market expectations.The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) held policy rates steady in June 2024 and slightly revised the GDP growth projection for FY25 to 7.2%, reflecting optimism amidst global headwinds.

India achieved it's first BOP surplus in 10 months with Current account surplus USD 5.7 billion in FY24. Going forward in FY25, it is expected that the domestic economic expansion to slow down a bit. Rising oil and gold prices may lead to higher deficits. Industrial Activities is also expected to slow down in FY25. Index of Industrial Production (IIP) growth decelerated to a three-month low of 5% YoY, core sector growth increased to 6.2% YoY.

The merchandise trade deficit widened to seven Month High. Gains in consumer durables (9.8% YoY) and construction goods (8% YoY) were partly offset by a decline in consumer non-durables (2.4% YoY). The growth in Manufacturing sector has slowed down but remains above the global Average. Both the PMI manufacturing- 57.5 and Services- 60.2 remains in the expansion zone.

In the inflation front, the retail inflation has fallen but the trend for wholesale inflation remains High. Elevated food prices due to lower farm yields has kept the inflation High. A normal monsoon has been projected which may ease the supply crunch by late August. Although, the government's recent hike in the minimum support prices (MSP) for 14 kharif crops may further impact food prices.

India's merchandise trade deficit widened to a seven-month high of $23.8 billion in May 2024, with imports growing faster (14.4% MoM) than exports (9% MoM). The oil trade deficit surged to an all-time high of $13.2 billion, contributing 55.4% to the overall merchandise trade deficit. However, India’s foreign exchange reserves stood strong at $651.5 billion, providing a buffer against global risks. An improving global economic landscape and robust services exports are expected to help contain the current account deficit.

The Indian economy's resilience, supported by strong urban demand, a potential recovery in rural demand, and ongoing government capital expenditure, provides a positive outlook for FY25. However, challenges such as rising input costs and food inflation remain. The coming months will be crucial in determining the balance between these growth drivers and potential headwinds.

By Shweta Hande

" The author holds a MBA in Finance, a financial and political data analyst based in Mumbai "

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