Series 105 – Inflation Hits Six-Year Low, Growth Stays Strong

Most of us are currently discussing the U.S. tariff policies and the growing fears of a potential recession in the American economy. Amid these global uncertainties, India has delivered a contrastingly positive signal—its retail inflation has dropped to a six-year low of 3.34% in March 2025. This moderation is largely attributed to a strong increase in supply rather than a fall in demand. Favorable monsoon conditions over the past year have significantly improved agricultural output, especially in vegetables and pulses, leading to a sharp decline in food inflation.

India’s GDP growth remains robust, with projections around 6.5% for 2025, despite the global slowdown. This resilience is backed by easing crude oil prices—Brent crude recently dropped to $66 per barrel—which helps control fuel-related inflation. The India Meteorological Department has also forecast an above-average monsoon for this year, further boosting optimism for continued agricultural strength and stable price levels.

In response to this favorable inflation trajectory, the Reserve Bank of India recently cut the repo rate by 25 basis points to 6%, with analysts expecting more rate cuts in the near future. Increased liquidity from a looser monetary policy is likely to support consumption and investment, which could improve corporate earnings.

While earnings growth remains tepid for now, the broader macroeconomic tailwinds suggest strong potential for a market rally. If earnings start aligning with these favorable economic indicators, Indian equities could be poised for a significant rally in the year ahead.

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