India’s Economic Resurgence: Signs of Growth in Q3 FY25

The Dawn of Economic Recovery

India’s economy is poised for a resurgence as it enters the third quarter of FY25, supported by positive rural consumption trends and renewed government focus on development initiatives. A report by Motilal Oswal Financial Services (MOSL) highlights a promising trajectory, driven by favorable monsoon conditions, political stability, and strategic capital expenditures.

With a strong monsoon season exceeding the long-term average by 8%, rural demand is gaining momentum. Additionally, the BJP-led NDA government’s recent electoral victories are expected to translate into a heightened emphasis on infrastructure development and growth-oriented policies, further bolstering economic activity.

Sectoral Drivers of Growth

The MOSL report underscores a similar earnings trajectory in Q3 FY25 as observed in Q2 FY25, with several sectors leading the charge:

1. BFSI (Banking, Financial Services, and Insurance)

The BFSI sector remains a key driver, with adjusted earnings growth projected at 8%. Sub-segments expected to contribute significantly include:

• Insurance: Predicted growth of 23%.

• Public Sector Banks (PSBs): Estimated growth of 13%.

• Non-Banking Financial Companies (NBFCs): Lending growth at 8%, while non-lending growth surges by 39%.

• Private Banks: A modest 2% growth.

2. Capital Goods

Earnings in the capital goods sector are expected to soar by 26% year-on-year, marking a significant recovery. While FY25, being an election year, initially hinted at subdued order inflows, a substantial ramp-up is anticipated in Q4 FY25.

3. Technology, Healthcare, and Real Estate

These sectors continue to contribute steadily to the earnings trajectory, reflecting resilience and adaptability in the face of economic challenges.

Strong Ordering Activity: A Positive Indicator

Order inflows across key sectors remain robust, demonstrating the economy's resilience and potential for growth. Areas showing strong performance include:

• Thermal Power and Renewables

• Transmission and Distribution (T&D)

• Data Centers

• Buildings and Factories

However, sectors like water and railways have witnessed weaker order inflows, signaling a need for targeted interventions to stimulate growth.

Key Events to Watch: Budget and Monetary Policy

1. Union Budget FY26

The upcoming Union Budget will be a pivotal event, setting the tone for government capital expenditures and policies to boost consumption. Investors and analysts alike will keenly watch for measures that could provide further impetus to economic recovery.

2. RBI Monetary Policy

The Reserve Bank of India’s monetary policy in February will play a crucial role in shaping interest rate trends. Markets will closely monitor any adjustments to gauge their impact on borrowing costs and overall economic activity.

Impact of Political Stability

The BJP-led NDA government’s recent victories in state elections and bye-elections have reinvigorated its focus on developmental initiatives. This political stability is expected to translate into increased capital expenditures and faster execution of infrastructure projects.

With FY25 being an election year, this momentum could result in substantial order inflows in Q4, particularly in areas like renewables, thermal power, and data centers.

Rural Recovery: A Silver Lining

The robust monsoon season has directly impacted rural consumption, providing a much-needed boost to sectors reliant on rural demand. Improved agricultural output and higher disposable incomes are likely to drive consumption patterns, benefiting industries such as FMCG, retail, and automobiles.

Medium-Term Opportunities Remain Intact

Despite short-term fluctuations, the medium-term outlook for India’s economy remains optimistic. With strong fundamentals, favorable demographic trends, and increasing investments in infrastructure and technology, India is well-positioned to sustain its growth trajectory.

A Promising Future for India’s Economy

The early signs of recovery in Q3 FY25, driven by rural consumption, sectoral resilience, and government initiatives, paint a positive picture for India’s economy. While challenges remain, the combination of political stability, strategic capital expenditures, and robust order inflows provides a strong foundation for sustained growth.

As the Union Budget and RBI’s monetary policy decisions loom, all eyes will be on how these critical events shape India’s economic landscape in the coming months. The stage is set for India to emerge stronger, leveraging its vast potential and navigating global uncertainties with resilience.