The Economic Survey 2025 predicts a 6.3-6.8% GDP growth for India in FY26 while raising concerns about the impact of US market fluctuations on Indian stocks.
Economic Survey 2025: India’s GDP Growth Outlook and Risks from US Market Volatility
The Economic Survey 2024-2025 projects India’s GDP growth for FY26 to be between 6.3% and 6.8%, emphasizing the importance of domestic growth drivers and the need to carefully monitor external market conditions. As the country braces for another fiscal year, the survey highlights potential risks, particularly from the US stock market, which has seen elevated valuations and could negatively impact Indian markets.
US Market Concerns: Elevated Valuations and Potential Global Impact
The US stock market, as of late 2024, is experiencing record-high valuations, peak corporate earnings, and optimism among investors. Given that the US represents a substantial 75% of the MSCI World Index (as of November 2024), any downturn in US markets could trigger a ripple effect across global markets, including India. The Economic Survey flags this as a potential risk, urging greater vigilance from Indian investors and policymakers.
One of the primary concerns is the sustainability of US corporate profits, particularly in the tech sector. These profits have become increasingly concentrated in a few major technology companies, raising questions about the durability of such growth in the coming years. Furthermore, government expenditure in the US has surged by 10% year-on-year, hitting a total of USD 6.75 trillion between October 2023 and September 2024, which may further strain the market.
Indian Stock Market Trends: Rise in Retail Investor Participation
While global factors like the US market remain a concern, the Economic Survey points out that the Indian stock market has shown remarkable resilience, driven largely by strong domestic factors. A key highlight is the significant rise in retail investor participation, which has surged over the past five years.
By December 2024, unique investors on the National Stock Exchange (NSE) had exceeded 10 crore, a threefold increase from four years earlier. This number continued to climb, reaching 10.9 crore by the end of the year. Similarly, the number of client accounts on the NSE jumped from about 6 crore in late 2019 to nearly 21 crore by December 2024, reflecting a major shift in market dynamics.
The growing retail presence has had a noticeable impact on trading activity. Monthly active traders in the NSE’s cash segment grew from 32 lakh in January 2020 to approximately 1.4 crore by November 2024. Over the past four years, retail investors have invested a net ₹4.4 lakh crore in the NSE’s cash segment, with 2024 recording peak net inflows of ₹1.5 lakh crore.
The increased participation from individual investors, combined with mutual fund inflows, has helped buffer the Indian equity markets against fluctuations in Foreign Portfolio Investor (FPI) inflows, which have been volatile in recent years.
De-Linking Indian Markets from US Influence: A Notable Shift
Despite the ongoing concerns regarding US market trends, there has been a noticeable shift in the way Indian markets respond to global market fluctuations. The Economic Survey highlights that the correlation between India’s Nifty 50 index and the US’s S&P 500 index has been diminishing over the past four years. This trend suggests that Indian markets are becoming increasingly less reliant on US market movements.
A prime example of this shift occurred in October 2024, when FPI withdrawals of USD 11 billion from India failed to cause significant damage to the market. The Nifty 50 index dropped only 6.2%, largely due to sustained support from domestic retail and institutional investors. This resilience contrasts sharply with the severe market decline seen in March 2020, when FPI outflows of USD 8 billion led to a 23% drop in Indian equities.
This growing independence from US market trends is evident in the reduction of the five-year rolling beta between the Nifty 50 and the S&P 500, indicating that Indian markets are becoming less sensitive to global movements.
Historical Data: Indian Markets’ Susceptibility to US Trends
Despite recent developments, historical data underscores the ongoing influence of the US market on Indian equities. Analysis from 2000 to 2024 shows that during 22 occasions when the S&P 500 declined by over 10%, the Nifty 50 also dropped in 21 of those cases, with an average decline of 10.7%. Conversely, during 51 instances when the Nifty 50 saw corrections of over 10%, the S&P 500 posted positive returns 13 times, with an average return of -5.5%.
This indicates a stronger and more consistent relationship between the US market’s performance and Indian equity trends. Moreover, data analysis suggests that movements in the US market precede changes in Indian markets, particularly during periods of market disruption, further emphasizing the importance of keeping a close watch on US market developments.
Implications for Indian Investors: What Lies Ahead
As India moves into FY26, the country’s domestic growth levers remain crucial for continued economic expansion. While the US market remains a significant risk factor, the increasing resilience of Indian markets—bolstered by robust retail investor participation—offers hope for the future.
However, the Economic Survey urges caution, recommending that Indian investors remain vigilant to global market fluctuations, especially those emanating from the US. As the Indian stock market grows more independent, it will be important to monitor how this trend evolves in the coming years and how domestic policies can continue to support investor confidence.
Conclusion: The Road Ahead for India’s Economic Growth and Stock Market
The Economic Survey 2025 outlines a positive GDP growth forecast of 6.3% to 6.8% for India in FY26, driven largely by domestic factors. However, concerns about the US stock market’s potential impact on global markets—particularly India—remain a key challenge.
As retail investor participation continues to rise, Indian markets may be better equipped to withstand external shocks. Still, given the historical influence of the US market, investors should remain cautious and keep a close eye on global market trends, especially in the context of record-high valuations in the US.
