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Informist, Tuesday, Jun. 3, 2025

 

MUMBAI – UBS Securities has raised its forecast for India's GDP growth in the current financial year by 40 basis points to 6.4%, citing better-than-expected domestic demand momentum, hope of a US-India trade deal materialising, and support from sustained lower global crude oil prices.

 

Government data released Friday showed India's GDP grew higher-than-expected at 7.4% in the quarter ended March, thanks to higher investments, an uptick in construction, and a rise in net taxes. For FY25, India's GDP growth was 6.5%, the lowest in four years.  

 

"Our higher GDP forecast assumes no significant increase in the effective tariff rate against India and the overall global tariff situation remaining the same," Tanvee Gupta Jain, chief India economist at UBS Securities, said in a report. "Looking at the details, we expect household consumption growth to pick up and become broad based as rural consumption gathers pace on hopes of a favourable monsoon and lower food prices, and urban demand improves on policy stimulus, softening inflation, and rate cuts."

 

UBS' lead indicator, the UBS India Composite Economic Indicator, suggests economic momentum held up in April despite the trade war. On a seasonally adjusted sequential basis, the indicator was up 1.1% month-on-month in April compared to an average of 1.2% in the March quarter, the report said.

 

UBS expects fixed capital expenditure growth to moderate marginally in FY26, because of the risk of China offloading excess capacity in the manufacturing sector, and heightened global uncertainty dragging on private corporate investments. Further, capital spending by states could be disappointing on stretched balance sheets in FY26 even if central government capital expenditure growth remains robust, the report said.

 

"India's macro stability risks remain relatively contained. With the global backdrop remaining uncertain, we expect monetary policy to continue to do the heavy lifting to support India's growth momentum," Jain said in the report.

 

With inflation staying low, UBS expects the Reserve Bank of India's Monetary Policy Committee to lower interest rates by an additional 50-75 basis points in this cycle, which began with a 25 bps cut in February, followed by another 25 bps cut in April. The repo rate, currently at 6.00%, is widely expected to be lowered by another 25 bps later this, according to an Informist poll. UBS expects the repo rate to be lowered till 5.5% in this cycle.  End

 

Reported by Shubham Rana

Edited by Deepshikha Bhardwaj

 

 

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