ETFs to Watch as India’s Economic Growth Slows Down in 2025

As India’s growth forecasts dip, investors are eyeing ETFs for potential opportunities

ETFs to Watch as India’s Economic Growth Slows Down in 2025
ETFs to Watch as India’s Economic Growth Slows Down in 2025

Mumbai: A strong dollar and rising oil prices are raising concerns about India’s economy, which has been one of the fastest-growing in the world. The Nifty 50 index, which tracks the top 50 companies in India, has dropped about 13% after a solid gain of 20% last year.

The challenges are coming from outside, like unpredictable policies from President-elect Trump and limited options for U.S. interest rate cuts. This has led to a significant outflow of foreign investments.

The strengthening dollar is hitting India hard, with foreign investors selling off over $4 billion in assets just this January. This follows nearly $11 billion in withdrawals last quarter. Investors are getting nervous about India’s securities, especially with uncertainty around Trump’s policies.

The rupee might take a hit as the dollar continues to strengthen, which is concerning given India’s rising external debt. As of September last year, India’s external debt-to-GDP ratio was at 19.4%.

By the end of September 2024, India’s external debt reached $711.8 billion, a significant jump from $637.1 billion the previous year. Most of this debt is in dollars, making up 53.4% of the total.

The National Statistics Office has lowered its growth forecast for India to 6.4% for the year ending in March, marking the slowest growth in four years. This is largely due to a struggling manufacturing sector and reduced corporate investments.

The Reserve Bank of India has also cut its growth forecast for the same period to 6.6%, down from 7.2%. They cited persistent inflation as a major factor.

Bank of America has also revised its GDP growth forecast for India, now predicting 6.5% instead of 6.8%. They believe there could be a recovery in 2025, but it’s hard to say how strong or fast it will be.

The IMF’s Managing Director thinks India’s economy will be slightly weaker in 2025, even with steady global growth. The UN has also lowered its growth expectations for India, now forecasting a 6.6% growth this year but still keeping a positive outlook.

Private investment growth is expected to slow down to 6.4%, compared to 9% last year. Manufacturing, which is about 17% of GDP, is projected to grow at just 5.3%, a big drop from last year’s 9.9%.

Construction is also expected to slow, with growth projected at 8.6%, down from 9.9%. Key sectors like trade, hotels, financial services, and real estate are also likely to see slower growth.

Despite these challenges, there’s a bit of hope. Investors are bracing for another quarter of slow growth, and some forecasts suggest the Nifty 50 index could drop another 5% by March.

However, with potential tariffs on Chinese imports, India might benefit as companies look to shift manufacturing there. Apple is already moving some production to India.

Even with high inflation, the recent drop in annual inflation gives the Reserve Bank of India some room to cut rates, which could help the economy.

In light of all this, investors with a high risk tolerance might want to consider a “buy-the-dip” strategy with India-focused ETFs. Some options include the iShares MSCI India ETF, WisdomTree India Earnings Fund, and Franklin FTSE India ETF.

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