India’s economy is showing promising signs of recovery according to PL Capital’s recent strategy report. The Indian market faced pressure in recent months due to Foreign Institutional Investors (FIIs) selling. However, there has been a significant improvement, leading to a 10% return on the Nifty index over the last six months. The financial results for the fourth quarter of FY25 have exceeded expectations, with EBITDA and PBT (excluding oil and gas) showing a 5.1% and 9.2% increase respectively.
Consumer demand has been low for the past few quarters. Yet, rural demand has seen a rise following last year’s monsoon, while urban demand faced several challenges. These included elections, extreme heat, prolonged monsoons, and rising food inflation in September. Despite these challenges, early signs of improvement in urban consumption are emerging, although this recovery is expected to be slow.
In FY25, agricultural production has increased, with a rise of 6.8% in Kharif crops and 3% in Rabi crops. The purchase figures have reached 29.5 million tonnes, up from 26 million tonnes last year. This improvement suggests that the government will be better equipped to manage wheat prices. Moreover, water reservoir levels in May were 22% higher than the same period last year. The normal monsoon is expected to maintain groundwater levels, positively impacting the upcoming Rabi crops.
The report also highlights the importance of ‘Operation Sindoor’, showcasing the advanced use of aerial warfare, missile systems, and drone technology. This reinforces the strategic significance of the ‘Make in India’ initiative. As global powers seek to increase their influence in Southeast Asia, geopolitical uncertainties are anticipated to intensify. In response to these changing global dynamics, India must significantly increase its investments in military hardware, space technology, drones, air defense systems, aircraft carriers, smart grids, and power infrastructure.
The budget tax cuts are also expected to improve demand. The FY26 budget proposes to reduce personal income tax rates, and the benefits are now starting to reach the public. For the next two quarters, with favorable conditions from last year’s elections and the extreme heat, PL Capital expects increased consumption. The combined effects of low inflation, declining interest rates, and a normal monsoon are expected to further support this recovery. Taking into account the estimated 2.5x multiplier effect of tax cuts, the resulting increase in demand could reach around ₹2,500 billion (approximately $30 billion).
Every consumption sector is likely to benefit from this increase, but the impact will be more significant for individuals earning over ₹1 million annually. This increase is expected to boost discretionary spending. While moderate growth is anticipated in essential goods, a significant surge is expected in travel, consumer durables, quick service restaurants, clothing, automobiles, housing materials, and personal accessories including jewellery.
In conclusion, with the normal monsoon, low inflation, and tax cuts, India is poised for a potential boost in demand across various sectors. The economy’s recovery is set to gain momentum in the coming quarters, benefiting both rural and urban consumers alike.
Leave a Reply