Market Outlook, Early June 2025

India continues to shine amid a challenging global backdrop marked by slowing growth, volatile geopolitics, and weakening trade momentum. While the world economy braces for headwinds, India is navigating the turbulence with solid fundamentals, policy clarity, and structural resilience. Here’s a full picture of how things stand at home and abroad.

India’s GDP for the fiscal year ending March 2025 was revised slightly upwards to 6.5%, compared to earlier projections, though it marks a slowdown from 9.2% in FY 2023-24. Despite the moderation, India remains the fastest-growing major economy globally. The deceleration is largely due to weaker fixed capital formation and slower manufacturing growth. However, this was partially offset by stronger agricultural output and robust export performance, particularly in sectors less affected by global trade slowdown.

In the fourth quarter of FY 2024-25 (January–March 2025), the economy clocked an impressive 7.4% year-on-year growth, beating the 6.7% forecast and marking the fastest quarterly expansion since Q1 FY24. Gross Value Added (GVA) increased 6.8%, driven primarily by construction and manufacturing. Rural demand for durable goods and agricultural equipment played a key role in lifting private consumption, which rose by 6%, even as urban consumption remained tepid.

Inflation and Policy Direction

India’s inflation eased significantly, with April 2025 registering a 3.16% year-on-year rate — the lowest since July 2019 and comfortably below the RBI’s 4% target midpoint. Food inflation, in particular, stood at a low 1.78%, keeping essential prices stable.

While inflation remains under control, the OECD projects only one more 25 basis point rate cut in India by end-2025, citing anchored inflation expectations and a relatively balanced output gap. This cautious monetary stance will ensure stability while keeping room open for growth-led impulses.

The Union Budget 2025–26 took aim at stimulating domestic demand. It included personal income tax cuts designed to boost consumption among India’s rising middle class, currently 31% of the population and expected to grow to 38% by 2031. This move could inject up to INR 630 billion in disposable income, energising consumer sectors.

Other focus areas included MSME support, infrastructure acceleration, and reforms across taxation, urban development, power, mining, and financial regulation. These are expected to lay the groundwork for medium-term investment-led momentum, especially into FY 2026.

India’s Position on the Global Stage

In 2025, India surpassed Japan to become the world’s fourth-largest economy, underscoring its growing economic clout. While some may critique that the per capita GDP is not high, this misses the point that without growing the numerator, the final number won’t rise. Looking forward, the OECD projects India to grow this numerator at 6.2% in FY25, slightly below the National Statistical Office’s 6.5% estimate, with expectations of stronger investment-led growth in FY26.

This places India ahead of global peers. Economists forecast US GDP growth will slow from 2.8% in 2024 to 1.6% in 2025, as weak investment and policy uncertainty weigh down the economy. Analysts project the European Union will grow a modest 1.2% by 2026, while Japan’s economy will tick up briefly before softening again.

Geopolitical Flashpoints Fuel Global Market Volatility

Recent months have seen a spike in geopolitical tensions, pushing up market volatility and dragging down investor sentiment:

• India-Pakistan Conflict: After a terrorist attack in Pahalgam in April 2025, India launched Operation Sindoor, striking militant camps across the border. Markets in India dipped briefly but quickly recovered after a cessation. The markets as on 4 June 2025, are at a higher level (Nifty: 24590) than they were before these incidents (Nifty: 24376).
  
• Russia-Ukraine War: The conflict remains ongoing, with Ukrainian drone strikes on Russian air bases prompting retaliation and renewed sanctions threats. Disruptions in energy and grain supplies have rippled through global inflation channels. Russia’s retaliation could spook global markets.
  
• US-China Tensions: The two nations reached a short-term truce in May 2025, agreeing to reduce tariffs by 115 percentage points for 90 days. However, strategic frictions over Taiwan persist, keeping the global trade outlook clouded.
  
• Middle East Risks: Tensions remain high with renewed Israeli military actions and the possibility of escalation involving Iran, further straining global oil markets.
  

Trade Growth and Investment Sentiment

The OECD expects global trade growth to decline sharply, from 3.8% in 2024 to just 2.2% by 2026. This will disproportionately affect export-heavy economies and sectors, including some Indian industries. Rising tariff tensions and trade policy unpredictability are already weighing on investor confidence and financial markets.

Public debt levels globally are another concern, with projections suggesting they will approach 100% of world GDP by the end of the decade, surpassing pandemic-era highs. In the United States, consumer confidence has hit its lowest level since 1981 due to persistent inflation worries.

Long-Term Outlook

Despite near-term risks, India’s structural strengths, including favourable demographics, expanding middle-class consumption, improved tax compliance, and rising infrastructure investment, provide a long-term growth cushion.

While geopolitical tensions and global trade disruptions may continue to cause volatility, India’s fundamentals suggest that the long-term trajectory remains upward.

In a world that’s becoming more fragmented and uncertain, India is positioning itself as a reliable engine of global growth, a role that appears increasingly within reach.