As we approach the end of the financial year, all eyes are on the fourth quarter (Q4) and how it will shape the markets. Historically, markets tend to be bullish in March and April. March is filled with anticipation of strong Q4 results, and April brings in actual results that often reinforce positive sentiments. The past few years’ data, as reflected in the attached charts, also supports this trend.
GDP Is Slowing Down but Still Resilient
India’s GDP growth for Q3 FY25 stands at 6.2%. While this aligns with estimates, it’s a slowdown from previous years. The fiscal year growth forecast has been revised to 6.5%, which, although slightly better than earlier projections, remains significantly lower than the 9.2% growth recorded in FY24. Even the Reserve Bank of India (RBI) has cut its GDP growth estimate from 7.2% to 6.6%, indicating that economic expansion has been losing some steam.
Despite the slowdown, the Indian economy remains resilient. The reduced forecast is not drastic, which means there is still potential for reasonable growth. Strong service exports and remittance inflows are supporting the GDP despite external challenges.
Inflation Has Been A Mixed Bag
CPI inflation is expected to rise to 3.9-4.0% in March 2025 from a low of 3.6% in February 2025. This February figure was the lowest in seven months, mainly due to falling food prices, particularly vegetables. But, core inflation rose to 4.3%, driven by increasing gold prices.
The RBI’s inflation target remains at 4% with a permissible fluctuation of 2% on either side. As long as inflation remains within this band, the market sentiment is unlikely to be severely impacted. However, investors will need to keep an eye on gold prices and any other factors that could cause unexpected spikes in core inflation.
Current Account Deficit Is Stabilizing
India’s current account deficit (CAD) is expected to stabilize at 1% of GDP for FY25, compared to 0.7% in the previous year. This stability is mainly driven by strong service exports and remittance inflows. The CAD for Q2 FY25 stood at approximately $11.2 billion, slightly higher than the previous quarter.
While the deficit has increased slightly, the overall stability in CAD provides reassurance to investors. Geopolitical risks remain a concern, but the fundamentals are not alarming.
More Data Awaited
The Indian government plans to start releasing monthly unemployment data from February-March 2025, covering both urban and rural statistics. This statistic will offer a clearer picture of employment trends and could influence market sentiment, especially if the data indicates improvement in employment conditions. The HSBC PMI numbers are also expected next week.
Market Outlook: What to Expect in Q4
Looking at past trends, markets tend to rally in March and April (see Nifty seasonality chart below). Markets tend to be bullish in March and April ‘on average’. The sentiment in March is driven by expectations of robust Q4 results, while April sees actual results backing up those expectations. These are on average, notwithstanding the story of the 6-foot man who drowned in a 4-feet average deep river.
If we see the charts below depicting sales growth, profit growth and margins of the aggregate of listed companies, Q4 does show a bump compared to Q3..
If the US economy does slip into a recession as may be possible given the current chaotic situation post Trump presidency, then foreign investors will come rushing back to India, thereby pushing up the markets here.
Conclusion
The key takeaway here is that while growth is slowing down, it’s not collapsing. India’s GDP growth, inflation stability, and strong CAD performance provide a cushion against volatility. Investors would do well to stick with strong, well-managed companies that align with Maxiom Wealth’s Roots & Wings investment philosophy — focusing on companies with strong fundamentals (Roots) and consistent growth potential (Wings).
Warren Buffett once said, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” This sentiment is even more relevant when preparing for potential market fluctuations.
To sum up, Q4 is likely to be a mixed bag of opportunities and challenges. With markets typically rising in March on the hope of strong results and April validating or correcting those hopes, investors should stay prepared for potential fluctuations. The data from previous years clearly indicates that Q4 remains a crucial period for wealth creation.