In partnership with

Good morning. In today’s edition — A deep dive into India’s tempered growth expectations; the rise of services exports; Foreign Portfolio Investors (FPIs) kick off 2025 with a major sell-off; and why fast-moving consumer goods (FMCG) companies are gearing up for a challenging year ahead.

THE TAKE

Beyond the Hype: Why 2025 Demands Careful Moderation in Business Strategy

What does 2025 hold for us as an economy and for businesses? What are the factors that will determine growth and prosperity in the year ahead? I would like to pose this question differently: What does 2025 not promise, and what does that mean for businesses and investments?

This leads to the economic narrative we choose to believe. Going into 2025, we were under the impression that the slowdown in corporate profits during the second quarter from July to September 2024 was somewhat one-off—a result of several factors such as heat waves, excessive rains, and elections that held back growth. The consensus that was building up suggested that the new year would see an upturn in many ways.

However, it appears that we may already be overestimating a bounce back. This is important for strategic reasons that I will come to.

I read through two sets of commentaries from economists—one from HSBC and the other from Axis Bank—and I will refer to both because they illustrate a dramatic setting if not resetting in expectations.

The first commentary notes that while some consumption growth is expected to return, there is also a need for a reality check.

India’s potential growth—the ability to grow sustainably without driving up inflation or external imbalances—is actually 6.5%, not the 7.5% seen over the past two years.

Moreover, the HSBC report highlights that the bulk of growth exuberance in recent years has been driven by the rise of the "new India." 

This segment, which accounts for 15% of GDP, is also growing at 15% annually and comprises several high-tech sectors. It has fueled remarkable growth in areas ranging from mobile phones to premium real estate and luxury goods.

While this trend continues, there are early signs of a slowdown, as there is only so much premium real estate or high-end products that consumers can absorb.

By the way, a report by Japanese brokerage Nomura suggests that India is in the midst of a cyclical slowdown, with evidence of household balance sheet stress aligning with weak income growth and K-shaped urban consumption demand.

Nomura explains that subprime borrowers are primarily taking on consumption loans, while those better off are leveraging to buy assets. 

This indicates a K-shaped credit market in India.

That India was seeing a K-shaped market or recovery has been contested by many policymakers.

Returning to the HSBC report, the good news, it says, is that 6.5% growth is still impressive in the current global context. 

This, of course, is a narrative within a narrative but something we can set aside for now.

The real challenge, according to HSBC, is to sustain this level of growth, which requires it to be more broad-based.

As the report points out, unbalanced growth can lead to excesses and eventually become unstable.

It cites the example of how urban consumption expanded strongly last year, fueled by a sharp rise in unsecured consumer loans, eventually prompting the central bank or Reserve Bank to intervene with higher risk weightages and thus more expensive loans.

To conclude here, there is an inherent problem with the 7.5% GDP growth narrative, which was built on last year’s 8.1% growth figure and the general sense of post-pandemic consumption euphoria.

Then comes the next report, authored by economists at Axis Bank, which focuses on the Government’s second Household Consumption Expenditure Survey (HCES).

Unlike an optimistic report by the State Bank of India team—which concluded among other things that poverty in India has fallen below 5% and that all is well—this one expresses some scepticism. 

Getting into the details can be a little weighty here, but the reports are available in the public domain.

The Axis Bank report points out that the HCES survey reveals trends that contradict anecdotal evidence and other data. 

It also notes that respondents not being truthful is a common issue, a problem highlighted by other economists as well. 

The survey, which suggests that consumption inequality has fallen, is better seen as a snapshot rather than a basis for identifying trends. 

According to Axis Bank, these trends also appear surprising and run contrary to reported revenues for listed firms and anecdotal evidence.

Speaking of anecdotal evidence, consumer products company Dabur said last week that its revenue rose in the low single-digit percentage range in the third quarter, driven by subdued demand for healthcare and beverage products. 

Analysts had expected revenue growth to improve to 4.8% in the October-December quarter, according to Reuters, compared to a 5.5% decline in the previous quarter, which was Dabur’s first drop in quarterly revenue since 2020.

Like its peers, Dabur India has faced challenges of rising raw material costs and low consumer demand amid high inflation, especially in food prices. 

The company noted that demand from rural consumers is rebounding faster than from urban regions. 

Interestingly, Dabur said it had partially offset high input costs through price hikes and cost-cutting measures—practices likely mirrored by other companies.

Narratives are important. They provide a sense of direction and inspiration when things are going well. 

But they can also confuse and lead us to project outcomes that may not be feasible—time and energy that could be better spent shifting strategies or adopting a more defensive stance.

This has likely been the case for several companies in recent months, whether they admit it or not. This is the strategic element I referred to earlier.

The automotive sector serves as a prime example, producing more cars and overloading dealers with inventory in the confidence that demand would hold steady—all while ignoring early signals of a slowdown, at least in the domestic market. 

The real estate market, too, is likely to face its own version of recalibration.

As we step into 2025, it will be a year of careful moderation and calibration even as we recover from the hangover of a four-year party, pretty much like someone who has imbibed too much on New Year’s Eve, fun as it was while the music was playing. 

It will also be a year where we must—hopefully—be more discerning about which signals to heed and which to ignore..

MESSAGE FROM OUR PARTNER

It's Time To Rethink Your Media Diet

Financial news is full of clickbait and fear tactics, wasting your time and clouding your judgment. The Daily Upside delivers expert insights—free every morning. Join 1M+ readers today!

Join 1M+ readers for free today!

CORE NUMBER

$35.7 billion

This is the total value of India’s services exports in November 2024, surpassing goods exports by approximately $3 billion for the first time, according to RBI and Commerce Ministry data. Goods exports stood at $32.7 billion during the same period. This milestone signals a structural shift in India’s trade dynamics, driven by IT and business services, which account for nearly 75% of services exports. This marks a significant change in India’s trade composition, driven by IT and business services, which accounted for nearly 75% of services exports. However, high demand for skilled IT professionals may create barriers to broader employment impact, and over-reliance on IT services makes the economy vulnerable to global downturns in technology spending. These challenges underscored the need for a balanced growth strategy, as noted by a Livemint report.

FROM THE PERIPHERY

—📉 In the first three trading sessions of January 2025, FPIs sold Indian equities worth Rs 4,285 crore, marking a sharp reversal from December 2024, when they invested Rs 15,446 crore. For the entire year of 2024, FPIs recorded a net investment of just Rs 427 crore, with significant sell-offs in October and November totalling ₹1,15,629 crore. FPIs have been net sellers in January six times over the past decade, including a record ₹33,303 crore outflow in 2022, according to The Economic Times. High valuations, a strong U.S. dollar, and rising bond yields may be driving the sell-off sentiment among FPIs. 

—🛂 Indian-origin tech companies accounted for 20% of all H1B visas issued by the U.S. between April and September 2024, according to data from U.S. Citizenship and Immigration Services. Of the 1.3 lakh visas granted, 24,766 went to Indian firms, with Infosys leading at 8,140, followed by TCS (5,274) and HCL America (2,953). Infosys ranked second only to Amazon, which secured 9,265 visas, while Cognizant, founded in Chennai but now headquartered in New Jersey, ranked third with 6,321 visas. The H1B visa programme remains critical for Indian IT although regulatory challenges persist under the upcoming Donald Trump presidency.

—⬇️ The FMCG sector in India continues to grapple with inflation and rising input costs, which is expected to impact Q3 FY25 performance. Consumer goods firm Dabur projects low single-digit volume growth and a flat operating profit due to persistent cost pressures. Marico anticipates a sequential improvement in domestic volumes but modest growth in operating profit as raw material prices like copra and vegetable oils remain high. In recent times, Urban consumption has slowed amid high food inflation, while rural markets show resilience, driven by better agricultural performance.  Companies are relying on price hikes and alternative channels like e-commerce and modern trade to navigate these challenges.

—🛻 India’s auto component manufacturers are expected to see slower revenue growth of 6-8% in the financial year 2025, compared to 14% in the previous year, according to CRISIL. The decline is attributed to moderate demand from original equipment manufacturers (OEMs) and sluggish exports to key markets like the United States and Europe. Despite this, profitability is projected to remain stable at 12-13%, driven by cost optimisation and high-margin exports of critical components. Annual capital expenditure by auto component manufacturers is also projected to remain steady at Rs 16,500 crore for FY25 and FY26, marking a 25% increase over FY24, the report added.

SUPPORT THE CORE

Dear Readers,

Some of you have written to us expressing your intent to contribute to The Core’s journalism. While we currently do not have a subscription or membership plan, you can still support us by clicking the link below.

Another way to support The Core is by sharing this newsletter with like-minded people in your communities, colleagues, friend and family.

Was this email forwarded to you? Subscribe

Want to sponsor this newsletter? Contact Us