Indian Economy Shows Steady Growth, Budget and Trump 2.0 Key to Market Returns

New Delhi: The Indian economy is growing steadily, with food inflation having peaked and the government focusing on accelerating capital expenditure (capex).

According to a report on Monday, the upcoming Union Budget and the potential return of Donald Trump to the U.S. presidency hold crucial implications for market returns.

Rural Demand and Sectoral Recovery

Rural demand is showing sustained recovery, and the festive and wedding season has boosted demand in various sectors, including travel, jewelry, watches, quick service restaurants (QSR), footwear, apparel, and durables. The report, by PL Capital Group – Prabhudas Lilladher, highlights an uptick in ordering momentum in sectors like Railways, Defense, Power, and Data Centers, all of which are expected to accelerate growth in FY26 and beyond.

Growth-Oriented Budget and Economic Stimulus

Amnish Aggarwal, Director of Institutional Research, expressed optimism for a growth-oriented Union Budget, which is expected to focus on pumping up the economy and incentivizing middle-class spending. Key themes for long-term gains include India’s capex story, discretionary consumption, and financialization.

Transformation in Retail and Potential Disruptions

The retail sector is on the brink of significant transformation, with quick commerce reshaping not just the grocery market but other discretionary segments as well. The report noted that the expansion of quick commerce into discretionary segments and food services could lead to near-term disruptions and impact profitability in these areas.

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Sectoral Outlook: Cement, Steel, Capital Goods, and Defense

The cement sector is expected to see better growth and profitability due to the revival of construction activities and anticipated price hikes. The steel industry’s performance will depend on import duties and global price trends. Additionally, capital goods and defense sectors should experience improved ordering momentum and execution in the coming quarters.

Importance of the Budget for Capex Sustainability

The Union Budget will be pivotal for the sustainability of capex, especially considering the likelihood of missing target spending in FY25. However, sectors like Defense, Power, Data Centers, Railways, and energy transition are expected to remain strong growth drivers.

Agriculture Outlook and Cooling Inflation

As India enters 2025, agriculture is poised for a strong Rabi crop, and normal weather patterns should help bring down inflation to 4.3-4.7 percent in FY26. The report suggests that higher crop output, increased construction and factory activity, and moderating inflation will boost demand, particularly in the latter part of Q4 FY25.