Market Review

The month of April witnessed heightened global uncertainties as US announced reciprocal tariffs in early April on several countries including India. However, it eventually postponed the application of reciprocal tariffs for 90 days except for China. In the US, GDP contracted in Q1CY25 as imports surged even though other components of domestic demand remained healthy. While US labour-market continues to exhibit resilience, consumer & business surveys suggest sentiments have deteriorated in recent months. Q1CY25 GDP growth in EU was higher than expectation and Germany's fiscal stimulus could drive growth in the medium term. The high tariffs affected Chinese manufacturing as PMI slid into contraction territory and was recorded at a 16-month low. Domestic demand continues to remain weak and deflationary pressures persisted.

Inflation has moved within a narrow range and largely on expected lines across most major economies. While recent inflation print in the US was benign, inflation expectations have gone up due to tariff related uncertainty. The US Fed has also indicated that the impact of tariffs could be inflationary, and the situation warrants close monitoring.

Indian economic activity improved in April: The high frequency indicators point towards improvement in economic activities in April. While manufacturing PMI climbed to 10-month high, GST collections too recorded robust growth. However, PV registrations and power demand moderated sequentially.

Source: www.gstn.org.in, www.icegate.gov.in, CMIE, PIB, RBI, www.vaahan.parivahan.gov.in, www.posoco.in ^Number >50 reflects expansions and number <50 reflects contraction compared to previous month. @ - figures are preliminary data and are subject to revision. * based on CMIE survey

Going forward, urban demand is likely to get a boost from income tax relief and easing monetary conditions while rural demand too is likely to remain steady on back of strong rabi output and prospects of normal monsoon. However, global uncertainties due to restrictive trade policies may dampen sentiment and could weigh on India's growth.

Trade deficit rises in March: Trade deficit in Mar'25 rose as compared to the previous month led by higher net oil and gold imports (net oil imports were higher due to lower petroleum products exports). India's merchandise exports at USD42bn were recorded at its highest level since Jun'22 driven by exports to USA, which crossed USD10bn/month for the first time ever (vis a vis average ~USD7bn/month in the preceding 12 months). Tariff uncertainty and resultant preponement of imports by US companies was at play. Exports were driven primarily by electronics, engineering goods, agricultural products and textiles.

Source: CMIE, Ministry of Commerce; *Net Gold includes gold, silver and pearls precious & semiprecious stones adjusted for gems and jewellery exports. ^NONG refers to Non-Oil Non-Gold (as defined above) imports/exports

The trade deficit is likely to remain at these levels going forward. Further, healthy growth in services exports is likely to keep current account within manageable range. Trade deal negotiations with US will remain a key monitorable in the coming months.

Retail inflation moderates in March, likely to remain benign: India's CPI inflation in March was recorded at its lowest level since Aug'19 driven by fall in vegetable, pulses and poultry prices. Core CPI remained elevated due to rise in gold prices.

Source: CMIE; @-CPI excluding food, fuel, petrol, diesel, gold, silver and housing

CPI inflation is likely to hover at current levels in the coming months due to favourable outlook on food inflation and benign core inflation momentum.

Commodity prices: Uncertainty around tariffs and concerns around global growth led to significant correction of commodity prices in April. Gold prices continued its upward trend as it continues to be a safe haven asset amidst rising uncertainties.

Source: Bloomberg; *Market prices as on April 30, 2025. ^Y-o-Y change.& - Change in FY26YTD

Summary and Conclusion:

Global growth prospects today face unprecedented uncertainty due to US' tariff policy. US growth is exhibiting early signs of cooling off and is likely to deteriorate going forward as effects of high tariffs and uncertainty weigh on prospects. Domestic demand in China remains subdued and deflationary forces have gathered steam. The global growth prospects greatly hinges on the outcome of US trade policy and in this regard trade negotiations with different countries remain a key monitorable going forward.

India's growth momentum improved sequentially in April. Going forward even if growth in FY26 is expected to remain at similar levels as compared to FY25, it will still be better than most global peers. Urban consumption is likely to get a boost going forward due to income tax relief announced by the Government and monetary easing by the RBI (which will result in lower borrowing cost). Rural consumption too is likely to remain steady on the back of bumper rabi harvest, falling inflation and higher real rural wage growth. India's external sector also remains robust on the back of comfortable current account deficit (due to better-than-expected services export) and adequate forex reserves. Rise in geopolitical tensions and a possibility of a trade war are key near-term risks.

Looking ahead, the medium-term outlook for India's economy seems optimistic, in our view. This optimism is driven by policy continuity, opportunities arising from shift in the global supply chain, enhanced infrastructure investments, the potential of resurgence in private sector capex, and the likely boost to private consumption.