The Macro Memo – June

A Slowing World, A Steady India

In recent weeks, India’s macro story has gained both volume and substance. Headlines have spotlighted geopolitical churn, central bank pivots, and capital market volatility but beneath it all, India continues to do what it now does best: compound progress. The past month served as a reminder that India’s rise is becoming harder to ignore in the noise.

Global Recognition Meets Ground-Level Momentum

India officially became the world’s fourth-largest economy, overtaking Japan with a nominal GDP of $4 trillion, according to IMF data.

“We are the 4th largest economy as I speak. We are a USD 4 trillion economy as I speak, and this is not my data. This is IMF data. India today is larger than Japan.” – BVR Subrahmanyam, CEO, Niti Aayog

The milestone marked a credible reaffirmation of India’s upward trajectory. At the same time:

• Rural consumption grew 7.1% in FY25, outpacing GDP growth. This uptick was supported by favorable monsoon rains, increased farm incomes, and easing inflation.
• Mid-cap profits rose 21% YoY in Q4 FY25, far ahead of large-cap peers. This surge was driven by robust performances in sectors like IT, banks, and metals.
• Blinkit crossed 30M weekly active users, showing a resilient, high-frequency urban demand.

As Global Growth Cools, India’s Capital Markets Warm Up

The World Bank’s Global Economic Prospects report set a cautious tone for the year ahead.

• Global GDP growth revised down to 2.3%, citing tight financial conditions and subdued investment.
• China’s economy remains under strain, with property sector distress approaching the four-year mark.
• The EU is exposed to adverse shifts in trade policies and related uncertainty.
• In the U.S., consumer sentiment has fallen sharply amid declines in equity markets and risk appetite.

India’s Relative Positioning:

• India’s FY26 growth forecast trimmed to 6.3%, yet still the highest among major economies.
• Earnings strength is consumption-led. Personal consumption grew 6% during Q4 FY25 after an 8.1% rise in the previous quarter.
• India’s MSCI EM Index weight rose to 18.66% in May 2025, the second-highest after China.
• Capital flows reflect conviction: India is increasingly treated as a structural allocation and not just a tactical bet.

“India’s steady nominal GDP growth is translating into greater weight in the MSCI EM index, driven by its consumption strength and maturing capital markets.” – Daniel Morris, Chief Market Strategist, BNP Paribas Asset Management

India’s Homegrown Private Equity Steps into Larger Shoes

Domestic GPs are playing to India’s structural strengths, focusing on mid-market growth and sunrise sectors.

Alongside the rise of domestic fund managers, the alternative capital platform itself is gaining scale. AIF investments rose 32% YoY to ₹5.38 lakh crore in Q4 FY25, an indicator of how fast India’s alternative capital base is maturing.

Source: Mint, June 2024

RBI Plays Offense with a Safety Net

The RBI’s June MPC meeting marked a clear pivot toward growth support. Key policy moves included:

• A 50 bps rate cut, bringing the repo rate down to 5.5%
• A 100 bps reduction in CRR, injecting additional liquidity into the system
• A shift in stance from ‘accommodative’ to ‘neutral’
• A record ₹2.69 lakh crore dividend transferred to the government

Together, these decisions signal a pro-growth posture, yet one carefully calibrated. The RBI’s easing bias is backed by softening inflation and strong macro fundamentals, allowing it to act without sacrificing fiscal prudence.

India’s Inflation at a Six-Year Low

• India’s annual retail inflation dropped to 2.8% in May 2025, marking the lowest rate in six years.
• This decline, primarily driven by easing food prices, supports the RBI’s recent 50 basis point interest rate cut.
• Economists anticipate that inflation may continue to trend downward, potentially leading to further rate cuts later in the year.
• India’s foreign exchange reserves stood at $691.5 billion as of May 2025, providing a strong buffer against external shocks.

Where the Capital Is Headed

• Renewables: Installed capacity crossed 232 GW, tripling in a decade. India is now the third-largest globally.
• Defense: A push for private-sector involvement shows intent. “We’ll bury you in orders,” said the Defense Secretary, framing defense not just as security, but as a capex strategy.
• EV: Tesla leased 24,000 sq ft of warehousing in Mumbai, an early but visible step in the sector’s long-term foundation in India.
• Semiconductors: Tata has begun construction of India’s first semiconductor fab facility in Gujarat, with a ₹91,000 crore investment, placing India on the global chip map.

Exports Projected to Surpass $900 Billion

• India’s Commerce and Industry Minister, Piyush Goyal, announced that the country’s exports of goods and services are projected to surpass $900 billion in the financial year 2025-26.
• In the previous fiscal year 2024-25, India’s exports reached a record high of $825 billion, reflecting robust performance amid global uncertainties.

The Systems That Make the Growth Stick

• Net NPAs dropped to 0.5% in FY25, from 6% in 2018 – a strong signal of banking sector health.
• Systematic Investment Plan (SIP) contributions reached an all time high of Rs 26,688 crore in May.
• India now leads global real-time payments: UPI accounted for 48.5% of all such transactions worldwide in FY25. March alone saw 20 billion transactions, worth over ₹24 lakh crore.

(In case you missed it, last month’s memo is here.)

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