India's GDP Growth Amid Mixed Signals Has Brokerages Give Stable Outlook

India's economic activity continued to improve, with the GDP growth rate rising to a four-quarter high of 7.4% in the January-March period. This was compared to a revised estimate of 6.4% for the October-December quarter. Leading brokerages including UBS, Morgan Stanley, BofA and Goldman Sachs among others have given stable outlook for the year ahead, while noting that capex growth led to higher than expected GDP numbers.

The Gross Value Added, excluding indirect tax and subsidies, rose 6.8% during the fourth quarter, compared to the estimate of 6.5% in the preceding quarter. Economists polled by Bloomberg had estimated GDP growth at 6.8% and GVA growth at 6.4%.

Here's what brokerages have to say.

UBS

UBS has revised its forecast for India's FY26 real GDP growth to 6.4% YoY, up from 6%. "Besides better-than-expected domestic demand momentum, building in a climb down of tariffs on Chinese imports, hopes of a likely US-India trade deal materialising sooner than later, and the tailwind of sustained lower global crude oil prices, we now raise our forecast of India's FY26 real GDP growth to 6.4% YoY," UBS stated.

The firm noted that real GDP growth at 7.4% YoY in the March quarter was higher than expected, surpassing the consensus expectation of 6.9% YoY.

"Our higher GDP forecast assumes no significant increase in the effective tariff rate against India and the overall global tariff situation remaining the same," UBS said.

Morgan Stanley

Morgan Stanley highlighted that growth in both GDP (7.4% YoY) and GVA (6.8% YoY) was higher than anticipated. "The upside surprise was led by higher-than-anticipated growth in net indirect taxes on a YoY basis," the firm noted.

It expects GDP growth to soften to 6.2% YoY in FY26 amid headwinds from global external factors. The firm also pointed out that the upturn in GDP was driven by stronger growth in gross fixed capital formation, which rose to a six-quarter high of 9.4% YoY, while private consumption growth moderated to 6% YoY.

"Within industry, the pickup was led by a broad-based increase across sub-sectors, the strongest being for construction (10.8%), while manufacturing activity grew 4.8%. While services remained steady at the aggregate level, growing 7.3% YoY, the sub-sector trend was mixed," Morgan Stanley said.

BofA Securities

BofA Securities maintained its FY26 GDP growth forecast at 6.3%. The firm noted that Q1 2025 GDP registered a strong print of 7.4% YoY, a significant recovery from 6.4% growth in Q4 2024. "Even though growth rates have come broadly in line with our and market expectations, we believe incoming data does not indicate a sharp recovery from here," BofA Securities stated.

The firm expects agriculture to recover and remain resilient, with public spending likely adding significant momentum to investment growth.

"With 4% CPI inflation and 7% GDP growth, the hurdle for RBI's MPC to cut rates again in June policy meeting is very low. We expect another 25bp cut in repo rate to 5.75% and continue to expect 5.50% as terminal rate by August 2025," BofA Securities said.

Deutsche Bank

Deutsche Bank Research reported that India's Jan-March 2025 real GDP growth came in at 7.4% YoY, higher than their and Bloomberg's consensus estimate of 6.8% YoY.

The firm attributed this to significantly lower subsidy disbursements, which boosted net tax collection growth. "Manufacturing sector real GVA improved somewhat, recording a growth of 4.8% YoY in Jan-March 2025," Deutsche Bank Research noted.

"Manufacturing sector real GVA improved somewhat, recording a growth of 4.8% year-on-year in Jan-March 25 versus 3.6% YoY in Oct-Dec 24 and 2.2% year-on-year in July-Sep 24, which was in line with a rebound in corporate sector earnings, after a sharp fall in July-Sep 24," Deutsche said.

Goldman Sachs

Goldman Sachs highlighted that the central government met its revised fiscal deficit target of 4.8% of GDP for FY25. "In March 2025, central government capex registered robust growth of 68% YoY, with the highest ever level of monthly spending," the firm stated.

Goldman Sachs expects the higher-than-budgeted dividend from the RBI to buffer any shortfall in income tax and aid in adhering to the fiscal consolidation path.

"In April, the overall expenditure increased by 10% year-on-year, mainly driven by capex, while revenue expenditure contracted by 5.7% year-on-year mainly due to lower interest payments. On the receipts side, direct taxes contracted in April, driven by a sharp contraction in corporate tax collections" the brokerage said.

Macquarie

Macquarie noted that Q4 FY25 GDP growth was driven mainly by higher capex. "Gross fixed capital formation was strong at 9.4% YoY in Q4 FY25," the firm stated.

However, Macquarie pointed out that private consumption expenditure remains subdued at 6% YoY, with muted urban demand but stronger rural demand indicated by robust tractor sales.

"High frequency indicators like passenger car sales, two-wheeler sales and petrol consumption point towards muted urban demand. However, rural demand seems to be doing better as indicated by strong growth in tractor sales," Macquarie said.