Panorama – March 2025
Panorama March 2025 edition is out now!
Panorama is a meticulously crafted report that provides a comprehensive overview of the macroeconomic factors and market trends influencing India’s economic landscape.
Here are the key insights from the report:
- Historically, the sharp depreciation of the INR has been primarily caused by external shocks but aggravated by domestic vulnerabilities. Additionally, the INR has been influenced more by growth-sensitive flows (FPI equity and FDI) than interest rate-sensitive flows (FPI debt, ECB, etc.). The INR’s correlation with growth-sensitive flows is -0.39, compared to -0.17 with interest rate-sensitive flows.
- The INR remained largely stable from January 2023 to October 2024, despite depreciation and volatility in other emerging market currencies, owing to heavy RBI intervention. The RBI allowed a sharper depreciation of the INR after October 2024 as the USD strengthened. However, the INR did not recover despite a correction in the USD since mid-January 2025.
- Net Foreign Direct Investment (FDI) flows to India have declined substantially over the past two years due to increased repatriation/disinvestment. However, recent market corrections should temper repatriations and improve net FDI.
- Both external shocks and domestic vulnerabilities have eased as the DXY has corrected from peak levels, the current account deficit (CAD) remains contained, and economic growth appears to have bottomed out. As a result, we expect the INR to remain stable in the near term and undergo a steady depreciation of ~2-2.5% over the medium term. However, the RBI’s ability to intervene in the FX market is limited because its reserves fall short of the threshold set by the IMF’s Assessing Reserve Adequacy (ARA) framework after adjusting for the forward book.
- Sales remained muted in the December 2024 quarterly results for BSE500 companies, but profit growth improved due to better margins. The earnings beats-to-misses ratio improved for large caps but declined for mid-caps and even more for small caps. Consequently, Earnings Per Share (EPS) downgrades accelerated after the December quarter results and became more pronounced as companies’ market capitalisation declined. EPS downgrades are also being witnessed across sectors.
