India’s growth cycle bottoming out, with indicators like interest rate and liquidity cycles supporting growth ahead: Report

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NEW DELHI: The domestic growth cycle may be bottoming out, with low interest rates and liquidity cycles, a decline in crude oil prices, and a normal monsoon, all supportive of stronger growth prospects for the Indian economy in the coming months, according to a report by HSBC Mutual Fund.

As per the report, these several supportive factors indicate a potential pickup in economic momentum going forward. It stated, “growth cycle in India may be bottoming out. Interest rate and liquidity cycles, a decline in crude prices, and a normal monsoon are all supportive of a pickup in growth going forward”.

The report stated that although global trade-related uncertainty remains a headwind for private capital expenditure (capex) in the near term, India’s investment cycle is expected to remain on a medium-term uptrend. This trend will be supported by government investments in infrastructure and manufacturing, a pickup in private investments, and a recovery in the real estate sector.

HSBC MF expects higher private investments in renewable energy and its related supply chain, localization of higher-end technology components, and India’s growing integration into global supply chains to contribute to faster growth. The report added that Nifty valuations are modestly above their 10-year average, and it remains constructive on Indian equities due to the more robust medium-term growth outlook.

However, the report also pointed out several headwinds that could impact growth. Weak global growth is likely to remain a drag on demand in the near future. In addition, global policy uncertainty — including the risk of tariffs, mercantilist policies adopted by certain countries, and ongoing geopolitical conflicts — is expected to weigh on private investment sentiment.

Other potential risks identified by HSBC MF include a sharp slowdown in government capital expenditure. Despite these challenges, the report highlighted several positives for the Indian market. Recovery in private capex remains a key driver, as industry capacity utilization based on the Reserve Bank of India’s survey data is at a reasonably high level, suggesting potential for an increase in private investments going forward.

Furthermore, the continued expansion of the Production Linked Incentive (PLI) scheme is expected to further boost private investments in targeted sectors. The report concluded that higher private capex in renewable energy and supportive domestic conditions are likely to sustain India’s growth momentum in the medium term. (ANI)

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