The month gone by – A snapshot

Global markets: Escalation of trade friction continues to occupy centre stage amongst global investors. The US macroeconomic scenario seems to be weakening with negative GDP growth in Q1 FY2025. High frequency data points suggest a significant deterioration in consumer sentiment in the country. The US Fed has cautioned that it is unlikely to reduce policy rates in the near term, as it intends to assess the impact of tariffs on the economy. China’s economy posted steady growth in Q1, however recent data points suggest that its economy has started to see adverse impact from increase in trade friction.

MSCI India outperformed global markets last month with a 5% return, as investors see India potentially becoming a key beneficiary of relocation of global supply chains. The Indian Rupee has appreciated by 4% during the last two months. Crude oil prices declined sharply by 14% last month due to weakening prospects for global growth and expectations of supply increase from OPEC+ countries.

Economy: Indian economy to outperform amidst global slowdown

The IMF has lowered its global growth forecast for 2025 from 3.3% to 2.8%, due to adverse impact from increase in global trade tariffs. Nearly all major economies are expected to see a slowdown with IMF Chief Economist cautioning that global economy is entering a ‘new era’ as the ‘global economic system that has operated for the last 80 years is being reset’. India’s economy, however, is projected to remain ‘relatively more stable’ due to support from ‘private consumption, particularly in rural areas’.

The RBI Governor has stated that India is likely to remain the fastest growing major economy globally as ‘strong domestic demand and relatively lower dependence on exports’ is likely to mitigate the impact from global trade frictions. High frequency data points such as industrial production, GST collections and automobile sales indicate that Indian economic growth momentum continues to pick up. The PMI survey for April indicates that ‘new export orders accelerated sharply, likely buoyed by the 90-day pause in the implementation of tariffs’. The recent commentary from US policymakers regarding the US-India trade agreement has further boosted economic sentiments.

Equity Markets: Buoyancy continues

Indian markets continued to exhibit buoyancy with strong gains in April, following the sharp rally in March. Supportive monetary policy stance by RBI coupled with resumption of FII flows drove the rally. Largecaps (Nifty index was up 4.3%) outperformed Midcap (+4%) and Small Cap (+1.8%) indices. Amongst sectors, Banking, Telecom and Fast-Moving Consumer Goods (FMCG) outperformed while Metals and Information Technology (IT) sectors underperformed. Both Domestic as well as Foreign Institutional Investors (FIIs) remained buyers with net purchases of US$ 3.3bn and US$ 1.3bn respectively.

Outlook: Indian markets continue to exhibit resilience amidst continued geo-political tensions and global macro-economic uncertainties. From a domestic market perspective, Reserve Bank of India (RBI)’s pro-growth monetary policy stance and sharp fall in commodity prices augur well for domestic growth setup. Inflationary pressures continue to abate while industrial growth remains steady. Media reports suggest trade negotiations with US are moving in positive direction for India. The current backdrop makes India one of the most resilient nations amongst Emerging Market (EM) countries. Corporate earnings trajectory is going through a soft patch amidst global macro-economic challenges. While our view on equity markets remains positive from a medium to long term perspective, we expect markets to remain range bound in the near term.

Fixed Income market: RBI steers interest rates lower

RBI’s monetary policy committee (MPC) reduced policy rates by 25bps for the second consecutive time in April. The MPC changed its stance to ‘accommodative’, implying further rate cuts can be expected. The policymakers cited a ‘decisive improvement in inflation outlook’ in support of their decision. The MPC’s outlook has been validated as retail inflation in March declined to a six-year low at 3.4%. RBI has lowered its inflation and growth forecasts for FY 2026. As such, monetary policy makers may further emphasize growth supporting measures going forward.

Outlook: Despite significant volatility in global debt markets, domestic yields declined sharply last month. RBI continues to make largescale purchase of IGBs from the secondary market as part of its operations to infuse liquidity into the banking system. FPIs, however, withdrew US$ 2.8bn from Indian debt markets in April, as they capitalized on the sharp decline in yields and booked profits.

The favourable fiscal and inflation outlook, combined with expectations of additional rate cuts by RBI, can lead to further decline in domestic yields in the coming months.