Chief Economist at the National Stock Exchange of India
The fiscal year 2024–25 unfolded against a backdrop of heightened global macroeconomic uncertainty, marked by a complex interplay of persistent inflation, diverging monetary policy stances, and rising geopolitical and trade tensions. The anticipated disinflationary path in advanced economies proved uneven, delaying rate cuts and keeping global yields elevated for much of the year. While the US economy remained resilient, underpinned by strong consumption and labour market strength, the final quarter saw renewed volatility amid US tariff announcements and policy uncertainty in general, growing concerns over fiscal sustainability, and importantly, renewed weakness in the dollar. Mr Trump, absent in the opening act of the fiscal year, played the starring role towards the end. China staged a notable recovery, buoyed by targeted policy support, improved credit conditions, a resurgence in strategic sectors like AI and lastly, accelerated export orders, while Japan attracted renewed investor interest following its exit from negative interest rates. These developments, alongside the fragmentation of global trade architecture and the reconfiguration of supply chains, had significant spillovers for emerging markets—including India—through capital flows, commodity price volatility, and shifts in investor risk appetite.
A sudden escalation in global trade tensions marked a defining moment early in April 2025, with the US announcing sweeping tariffs on 57 countries—only to pause and then intensify measures against China. The episode has drawn comparisons with the Smoot-Hawley Act, raising concerns over a repeat of interwar-style protectionism, though narratives lie between realignment of trade practices and great power competition, a theme we have pointed to in earlier issues of the Pulse. Inevitably, IMF and WTO projections point to a sharp hit to global growth and trade in 2025– 26, while inflation risks have risen. For India, the direct impact is expected to be limited, with various estimates suggesting a decline of 0.2–0.3pp in FY26 GDP growth. Ongoing bilateral engagements could help cushion spillovers. However, financial markets remain cautious, with global indices yet to recover fully, and the lingering uncertainty likely to weigh on global economic momentum, investor sentiment, and policymaking. For details, refer to our Chart of the month section.
Our Story of the month takes a deep dive into gold’s resurgence in a fragmenting world. The year FY25 saw gold emerging as the best performing asset, rising 41% in dollar terms. In the long horizons, however, Indian equities have delivered better returns, reinforcing their role as a wealth-building asset. Global gold demand hit a 15-year high in FY25, driven by sustained central bank buying and strong investment demand amid rising uncertainty. India also deepened its financialised gold ecosystem over the last few years via ETFs and Sovereign Gold Bonds. The RBI was the third largest official buyer of gold over the last three- and five-year periods, with gold now comprising over 11% of India’s FX reserves. With geopolitical and economic uncertainty persisting, core drivers of gold demand remain intact. Central banks are expected to stay key structural buyers as reserve strategies adapt to a fragmented global order.
Global equities delivered mixed returns in FY25, marked by elevated global uncertainty, sharp sector rotations, and divergent regional performances. The US outperformed for most of the year on the back of large-cap tech gains, before sentiment weakened in Q4 amid renewed tariff concerns. Emerging markets largely underperformed due to capital outflows and weak external demand, except China, which rebounded strongly on policy support, improved credit flows, attractive valuations, and AI-led optimism. Developed market equities (MSCI World) rose 5.6%, while the MSCI EM Index posted similar gains—driven mainly by China and India. Global fixed income market also had a turbulent ride last fiscal year, shaped by shifting rate expectations and persistent inflation. Strong US data early in the year delayed rate cuts, pushing the 10-year yield above 5% in October 2024 and triggering risk aversion. By early 2025, disinflation and softer growth prompted a dovish pivot by major central banks. Yields eased across the US and Europe, while Japan ended its negative interest rate regime after 17 years, though policy remained broadly accommodative.
Indian equities closed FY25 in the green, despite a sharp correction from October to February triggered by elevated valuations and sustained foreign outflows. A strong rebound in the final two months, supported by solid macro fundamentals and renewed FPI interest, lifted the Nifty 50 to a 5.3% annual gain. Over the past 20 years, the Nifty 50 has delivered a 13% annualized return—well above the MSCI World (5.9%) and MSCI EM (3.5%). India’s bond market also remained largely resilient in FY25, supported by anchored inflation, a stable RBI policy stance, improving fiscal fundamentals, and India’s inclusion in JP Morgan’s GBI-EM Index. Consequently, the 10-year G-sec yield ended the year 47 bps lower at 6.6%. More details in our Market Roundup section.
Despite global headwinds, India remained the fastest-growing major economy in FY25, with growth estimate for FY26 holding above 6% (RBI: 6.5%, World Bank: 6.3%, OECD: 6.4%) despite modest downgrades. Inflation moderated sharply, averaging at a six-year low of 4.6% in FY25—with March CPI falling to 3.3%. The external sector stayed stable, with CAD contained at 1.1% of GDP in Q3 FY25 and net services exports hitting a record US$189 bn in FY25. Fiscal consolidation progressed well, and high-frequency indicators pointed to robust domestic momentum. With inflation easing and risks to growth emerging, the RBI turned accommodative—cutting rates by 50bps in 2025 thus far—and signalled further easing ahead, supported by a favourable monsoon outlook.
Market activity softened in the second half of FY25, reflecting the broader equity sell-off, with average daily turnover declining across both cash and derivatives segments. However, on a full-year basis, activity remained strong relative to FY24. This was evident in: (a) a surge in registered investors to 11.3 crore by March 2025—adding 2.1 crore during the year, with key milestones at 10 crore (Aug ’24) and 11 crore (Jan ’25); (b) record net inflows of US$71.8 bn (Rs 6.1 lakh crore) by DIIs; (c) a 38% rise in average daily turnover in the cash segment; and (d) addition of over 4 crore new demat accounts—the highest ever in a single year. Total fund mobilisation rose 35% to Rs18.7 lakh crore, with equity IPOs hitting a record Rs1.7 lakh crore. Overall equity mobilisation, including follow-on offerings, more than doubled to Rs4.3 lakh crore. Despite these strong headline numbers, market participation remained highly skewed—over 90% of investors in the cash segment accounted for just 2.2% of turnover, while 73% of options traders contributed only 2.3% of premium turnover in March 2025.
As we step into FY2025–26, the global economy continues to navigate an uncertain equilibrium, with markets finely attuned to inflation trajectories, monetary policy pivots, trade disruptions, and geopolitical realignments. Persistent macroeconomic fragilities, alongside the accelerating race for technological dominance—particularly in areas like artificial intelligence and green energy—are reshaping global investment flows and supply chains. In this evolving landscape, India’s stable macro fundamentals, large and growing domestic market, and expanding technology and services footprint position it as a critical node in the next phase of global realignment. Strategic initiatives to strengthen digital public infrastructure, supply-chain capabilities, and financial resilience further enhance India's attractiveness. In the rush by countries for deals before the US tariff break ends in early July, some interesting arrangements are becoming visible. For instance, while 70%+ of iPhones sold in India are assembled locally, 100% of iPhones sold in the US may be assembled in India by next year, as per media reports. As economic, technological, and strategic considerations increasingly converge, India’s ability to build trusted, scalable systems and maintain policy agility will be pivotal in shaping its role in an emerging, multipolar world.