Global Economy: Global trade tensions ease

Global markets rallied last month as easing of US-China trade tensions improved market sentiment. US has agreed to reduce tariffs on imports from China by 10%, while China has agreed to resume imports of soybean from the US and delay the introduction of rare earth export control regime. US Fed reduced its policy rates by 25bps for the second consecutive month in October. However, given the paucity of macroeconomic data due to the ongoing shutdown of the US government, Fed Chair Powell has cautioned that ‘a further reduction in the policy rate at the December meeting is not a foregone conclusion’.

IMF has raised global growth forecast for 2025 to 3.2% as ‘increase in tariffs and its effect has been smaller than expected so far’ due to ‘new trade deals, multiple exemptions, and the private sector’s agility in rerouting supply chain’. It expects US, EU and Japan to post higher growth than had been expected earlier, while China’s growth outlook has been described as ‘worrisome’ due to continuing stress in the real estate sector.

MSCI Global Index rose by 1.9% in October, while MSCI Emerging Market Index rallied by 4.1%. MSCI India outperformed global markets with 4.3% returns last month. Despite imposition of fresh US sanctions on major Russian oil companies, crude oil prices declined by 3% in October as OPEC countries continued to increase production.

Indian Economy: Expected to remain the fastest growing globally

IMF has raised India’s current year growth forecast to 6.6%. IMF’s MD Georgieva has stated that due to implementation of multiple reforms, India is ‘developing into a key growth engine’ and is projected to remain the fastest growing major economy globally.

Despite headwinds from US tariffs, manufacturing PMI for October rose to 59.2 on account of ‘robust end-demand fuelled expansions in output, new orders, and job creation’. Indicative of strong demand revival, automobile sales rose to a record high in October, as impact of GST reforms has helped to revive consumption across the economy. Above normal rainfall during the monsoon season has resulted in healthy reservoir levels, which augurs well for the outlook of agriculture and rural sectors. Progress of ongoing talks for trade agreements with US and EU remain key monitorable.

Equity Market: Witnesses a strong rebound

Indian markets staged a strong rebound in the month of October with Nifty index gaining 4.5%. Mid and Small Cap indices were up 4.7% each. On the sectoral front, PSU Banking and Telecom sectors outperformed while Fast Moving Consumer Goods (FMCG) and Power sectors underperformed. Domestic flows remained steady with inflows of US$ 6.1bn, while Foreign Institutional Investors (FIIs) turned buyers of Indian equities with net buying of US$ 2.1bn.

Outlook:

The global macro-economic situation, while still fragile, continues to show stable trends driven by monetary easing, Artificial Intelligence (AI) related spends and declining tariff related uncertainties. On the domestic front, macro-economic data points continue to look robust led by uptick in consumption, government capex and strong rural demand. The corporate earnings, announced so far, have beaten expectations with domestic-facing sectors posting strong growth. The corporate earnings growth trajectory is expected to improve over the ensuing quarters on the back of continued pick up in consumption categories, gradual uptick in private capex and stable demand environment in external-facing sectors. Given this backdrop, we continue to maintain positive stance on Indian equity market.

Fixed Income Market: Inflation continues to decline

Retail inflation in September declined to a record low at 1.5% as food prices continued to decline. Outlook for inflation continues to remain benign due to expectations of good produce from the farm sector, recently implemented reduction in GST rates, as well as subdued commodity prices. Given that actual inflation is continuing to trail RBI’s projections, most analysts expect the monetary policy committee to cut interest rates in the coming months. Despite significant global volatility, FPI purchase of Indian debt rose to a seven-month high at US$ 1.9bn last month.

Outlook: Domestic bond yields eased last month, with the 10-year GSec yield declining by 4bps to 6.53%. RBI cancelled a scheduled Gsec auction of Rs 11,000 crores at end of last month. Market has interpreted this move to indicate the central bank’s discomfort with elevated yields as well as central government’s confidence in being able to meet its fiscal deficit target for the year. Given this context, we expect yield to stabilise around current levels in the near term.