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India’s growth report for 1Q25 (4QFY25) due this week and progress of the early onset of monsoon will be key to monitor in the near-term. A catch-up in government spending, consumption pick up on easing inflation, stronger farm output and positive lead indicators on rural demand are expected to help growth trends. Upward revision to March IIP will add to the updrift. Exports have moderated but a sharper contraction in import growth will see net exports surface as a contributor to the headline. While we expect an improvement from 3Q to 4QFY25, a sharper rebound is restrained by a weak credit growth impulse, and tight financial conditions in that quarter. The global macro environment was also less conducive as tariff action and retaliation put trade activity and capex commitments at risk. Besides these forces, real GDP growth is expected to surge towards 7% yoy in 4QFY25 from 6.2% quarter before, driven substantially by the one-off lift from net indirect taxes (lower subsidy payout), while the GVA at 6.2% proves to be a better barometer of the underlying impulse. Given the lag in growth numbers, we don’t expect the release to be market-moving, barring a sharp downside surprise.
There are indications of an early onset and swift spread of the crucial southwest monsoon this year. The monsoon reached the southern part of the country in late May, marking its earliest arrival since 2009. In addition, its spread the western parts was a fortnight before the usual date, making it the earliest since the 50s. India Meteorological Department (IMD) raised its monsoon forecast for 2025, projecting rainfall at 106% of the LPA (long period average), up from April’s 105% forecast. If this materialises, it will mark a second consecutive year of above normal rainfall for the country. Not only the timing of the start of the rainfall, but also its strength, persistence as well as geographical spread are important barometers for the summer crop. Material change in any of these variables could impact the standing crops and/ delay sowing or harvesting phases of the crop cycle, stoking interim price pressures. Separately, the minimum support prices for the FY26 kharif season was raised, with paddy’s by a modest 3% yoy, while pulses and oilseeds was higher than FY25. Benchmark INR bond yield held within familiar ranges after the RBI dividend transfer announcement, which was at a record high, but less than expected (see our note). Bias is for further pullback in INR yields on conducive macros, in contrast to a pronounced steepening bias in global curves. The operative overnight rate remains well below the repo and closer to the SDF rate amidst flush liquidity.
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