House View: India’s macro trifecta 2025

The final quarter of 2024 was marked by significant geopolitical developments that are likely to shape the global landscape in the coming months. With Trump assuming the presidency in January 2025, potential shifts in US global policies could significantly impact ongoing wars and conflicts worldwide. Looking ahead all eyes are on three key factors that are set to significantly influence the investment landscape for investors in India.

Firstly, continuing his MAGA (Making America Great Again) campaign, he has indicated lower corporate taxes, higher tariffs on imports and tightening immigration among other policies which can negatively impact global trade balance. Secondly, corporate earnings are anticipated to be weaker in the third quarter but are expected to rebound in FY26, driven by a robust economy. And thirdly, a combination of fiscal discipline, lower crude prices in 2025, and controlled inflation should pave the way for rate cuts in India, which in turn should stimulate economic growth.

Highlights

• Indian Equity markets along with that of United States has generated healthy returns across calendar years with only 3 incidents of negative calendar year returns in the last decade.
• With yields declining, fixed income is projected to deliver healthy returns in 2025. However, rebalancing will need to be considered from 2026 onwards.
• We expect equity markets to be driven by five key factors – [1] Trump 2.0 policy measures, US Fed meeting outcome and resulting Dollar Index (DXY) movement, [2] FY26 Union Budget on 01-Feb, [3] 3QFY25 corporate earnings & mgmt. commentary, [4] RBI’s monetary policy outcome & commentary on 07-Feb and [5] Trend/quantum of domestic net inflows into Equity MF & Index ETF.
• We remain positive on US equities with meaningful allocations to capture potential market gains. For investors with significant allocation to the Mega Cap stocks and concerns about the lofty valuations, strategic diversification into broader US equities where valuations are more attractive and macroeconomic policies are likely to provide stronger tailwinds in 2025.