Global economy is expected to grow at 3.2% in both 2024 and 2025. The short-term outlook for the global economy is stabilizing but many vulnerabilities remain. The reason for cautious optimism is easing of inflation and evidence of resilience of global commerce. Headline inflation in the G20 is projected to fall from 6.1% in 2023 to 5.4% in 2024 and 3.3% in 2025. Inflation is now at or close to central bank targets in most of the developed countries, providing room to lower interest rates.
Further, stronger than expected mandate win for Trump has boosted the global equity markets with US markets rising by ~5% in the last 1 month. This surge is driven by confidence that the new policies (tax cuts and high government spending) will benefit the US economy. However, world economy over the medium-term may slow down on account of deglobalization on high trade tariffs whereas currency volatility may increase leading to money shifting to USD as a heaven currency leading to depreciation of other currencies.
After three years of being bullish, we are turning cautious on the Indian economy. We believe that the high post-covid growth momentum across many sectors has begun to normalize. Some of the key reasons for our caution on the Indian economy are as follows:-
– RBI has taken and continues to take measures to tighten easy credit flow, an important driver of consumer spending in the last few years. Alongside past excesses, tight credit flow in coming months will also dent consumer demand.
– So far, government capex has been tepid, with spending at 37% of BE – one of the lowest in 15 years. While the muted pace is understandable due to union elections, the lag is substantial, with a consequent multiplier effect on sector capex. Also, the lag is despite strong revenue collections, implying weaker execution.
– With CPI inflation for the month of October touching 14-month at 6.21%, interest rates in India are likely to remain elevated due to surging inflationary pressures; unlike the global trend of falling inflation and reducing rates.
After achieving the milestone of 26000 in September 2024, the Nifty-50 corrected in October due to the geopolitical tensions in the Middle East, including the weak quarterly performance for Q2’25 as well as the highest ever monthly selling by FIIs (over 1 Lakh Cr). The monetary stimulus unleashed by China has sparked a wave of tactical FII outflows from India. The index closed 6.2% lower month- on-month; the steepest month-on-month decline since March 2020.
The below table shows the pain in the broader markets despite only modest correction being witnessed in Large-Caps/Nifty.
| Fall from 52-week high | No. of companies | % of companies |
| <10% | 348 | 11% |
| 10-20% | 687 | 23% |
| 20-30% | 882 | 29% |
| 30-40% | 634 | 22% |
| 40-50% | 294 | 10% |
| >50% | 161 | 5% |
Inspite of the above correction, PE of small-cap and mid-cap indices are trading at a significant premium over their long-term average PE
| Nov 14 – Nov 24 Avg. PE |
Current PE | Premium vs Average | |
| Nifty 50 | 20.5x | 20.6x | – |
| Nifty Midcap 100 | 22.1x | 30.1x | 36% |
| Nifty Smallcap 100 | 16.0x | 23.8x | 49% |
September 2025 is the 5th consecutive quarter of slowing profit growth and the 1st since March 2023 where profits actually shrank by 3.4%.
Q2 results reveal a cautious economic climate. The details of the latest quarter reveal some clear troubling spots. Key sectors like industrial commodities, construction, and investment-linked industries—think power and steel—have been especially sluggish. Demand is also lagging in consumer-driven sectors like FMCG and automotive, where growth is a struggle. FMCG companies are seeing only a slow recovery in rural areas, and urban demand is showing signs of cooling down. IT and BFSI have been the only 2 sectors which have performed reasonably better.
Corporate earnings, after four consecutive years of healthy double-digit growth, are moderating due to pressures from commodities and fading tailwinds from BFSI asset quality improvements. The earnings revisions have turned adverse, with downgrades exceeding upgrades by a big margin.
With a good monsoon, the Kharif season has provided much needed relief to rural India and there is a lot of enthusiasm for the Rabi season as most of the reservoirs have good water levels. This is evident from the recently published tractor sales data. Further, after 28 months, October month has recorded double digit export growth of 17% and growth of 28%, if we exclude non-petroleum and gems jewellery items. Based on this, we can say that the domestic manufacturing industry should pick up. But, so far, Q2 numbers have not been that great but with the Q3 results, there would be much more clarity. On the global front, except for the tensed geopolitical situation, things are for the better. It would be great and can flare up the world economy, if Trump could resolve the West Asia and recently escalated Ukraine-Russia crisis.
We, at Care PMS believe that the recent market correction provides a good opportunity to re-shuffle portfolio with sectors which have performed well and are expected to do better going forward. We have tried to build up the portfolio around non-discretionary spends which will provide faster recovery on market reversal.
We would like to end the update with the following quote:
“”Every 5% correction in the market increases knowledge by 10% and reduces courage by 10%. After a 50% correction, one might have 0% courage and 100% knowledge.”
