Carlos Casanova, senior economist Asia at Swiss private bank Union Bancaire Privée, discusses how despite recent India’s stock market volatility, its fundamentals remain intact.

Although India’s economy is grappling with cyclical challenges due to reduced public spending, Carlos Casanova (pictured) at Union Bancaire PrivĂ©e (UBP) believes that the country is set to maintain its growth trajectory. He is supporting a constructive outlook for 2025 and beyond.

Casanova highlighted how the Indian economy has lost some of its mojo, so it is not surprising that India’s stock market has experienced a 13 per cent decline since its peak in September 2024. “This drop has been fuelled by foreign investor withdrawals amid weaker corporate earnings and the economic slowdown,” he said in a note. According to India’s Central Depository Services, net foreign investment in both bonds and equities fell by about $950 million in the fourth quarter of 2024. “Additionally, the persistent weakness of the Indian rupee (INR), which has depreciated by about 3 per cent against the dollar since September 2024, has compounded these pressures, driving away investors,” he continued.

However, cyclical support is finally under way, underpinning his more constructive view for 2026. In February, finance minister Nirmala Sitharaman released a less restrictive budget, including changes to income taxes that will exempt an additional 10 million middle-income households from tax liabilities.

“Given the prominent role of consumption in India’s economy – the sector constitutes roughly 60 per cent of GDP – it makes sense for the government to focus on boosting consumer spending,” Casanova continued. “By freeing up disposable income and enabling middle-income households to spend more, policymakers can help to enhance corporate earnings and stimulate the economy.” Urban consumption, in particular, has struggled from high inflation and stagnant wages, so the rationale for tax cuts should be justified in his opinion. Government spending on major infrastructure projects has also been a crucial driver of India’s economic growth since 2020.

“Despite an unexpected contraction in actual spending during the first nine months of the current fiscal year, the government has raised its infrastructure expenditure target slightly from INR11.1 trillion to INR11.2 trillion ($129.18 billion), entailing a slightly less restrictive approach to public investment,” he said. Additionally, the government plans to offer interest-free loans for individual states to enhance their capacity for infrastructure development.

With a young population and low urbanisation rates, India remains one of the fastest-growing economies and is projected to surpass the eurozone in terms of its global GDP contribution by 2025.

India and the US
“India is also well-positioned to benefit from geopolitical shifts, providing an alternative market for companies diversifying away from China,” Casanova continued. Although the US has a $50 billion trade deficit with India, making it among the key targets for US President Donald Trump’s reciprocal tariffs, the country’s response has been swift and assertive.

During a recent trip to the US, Indian Prime Minister Modi met President Trump to discuss strengthening bilateral relations. In February, one month after Trump took office, they issued a joint statement outlining plans to enhance trade, increase defence cooperation, boost technological collaboration, and address global challenges such as terrorism and energy security. A key takeaway was the establishment of a “Framework for the US-India Major Defence Partnership in the 21st Century,” under which India will import more weapons from the US over a 10-year period.

Although Casanova lowered his GDP forecast for 2025 to 6.25 per cent, his 2026 forecast remains unchanged at 6.6 per cent. The International Monetary Fund (IMF) also projects GDP growth of 6.0 to 7.0 per cent in the coming years, supporting a constructive long-term outlook. However, despite expectations of a recovery in the months ahead, Casanova emphasised that investors should remain mindful of forex risks and elevated valuations: â€śInvestors should expect ongoing volatility in the rupee, which may affect sentiment and demand at least through the first half of 2025.”

Although currently underweight in India, as the market has been overvalued, Chetan Sehgal at California-headquartered investment manager Franklin Templeton, also believes that things are starting to change – he is planning to increase his exposure in the country.