Perspective from

Franklin Templeton India outlook 2025:

Imminent recovery, compelling
Emerging Markets Equity

long-term prospects
January 2025

Sukumar Rajah
Senior Managing Director,
Director of Portfolio Management
Franklin Templeton
Emerging Markets Equity
Singapore
The structural growth outlook for India’s economy remains very much intact in our view,
with various signs indicating that the slowdown in 2024 will be transitory. We expect the
growth momentum to improve entering 2025, as government spending picks up again and
consumer sentiment stays resilient. This should enable better earnings growth, amid an
improving economic backdrop that may also find support from favorable monetary and
fiscal policies.
Murali Yerram
Portfolio Manager We believe India will continue to stand out as the fastest-growing major economy globally
Franklin Templeton in the coming years. In this environment, the premiumization of consumption remains a
Emerging Markets Equity
high-conviction theme for Franklin Templeton Emerging Markets Equity (FTEME). We also
stay positive on India’s vibrant digital economy and its beneficiaries, as well as the struc-
tural growth potential in the health care sector.

Temporary slowdown, but recovery in place

India’s economic growth slowed in 2024, with gross domestic product (GDP) year-on-year
growth of just 5.4% in the fiscal second quarter (July-September), the lowest in seven
quarters. As a result, growth for the full fiscal year ending March 2025 will likely be 6.6%,1
moderating from 8.2% from a year earlier, based on Reserve Bank of India (RBI) forecasts.

We believe this slowdown is temporary, with deferred government spending in a general

election year the primary cause. Heavy monsoon rainfall during the summer also proved
disruptive to economic activities. In our view, several high-frequency datapoints are
showing improving underlying conditions for a recovery in growth:

Not FDIC Insured | No Bank Guarantee | May Lose Value

 • Government spending is picking up: Government cash balance—a major indicator for
government spending—dropped to a deficit of INR458 billion (US$5.4 billion) in the first
week of December. 2 This figure has been on a downtrend since September, suggesting
that the government is gradually ramping up its spending on priority initiatives, particu-
larly infrastructure and rural development. Importantly, a pickup in government
spending and activities should synergize capital expenditure (capex) growth in the
private sector. For instance, we may see faster approvals for construction and engi-
neering projects, bolstering company confidence to invest and hire more actively.
• Domestic demand remains healthy: Private consumption is a major driver for India’s
economy and it is showing stronger growth momentum in the second half of this year
(Exhibit 1). Consumer sentiment also remains resilient and year-ahead optimism has
held firm, indicating a post-election recovery (Exhibit 2). Consumption growth should
find further support if inflation cools in 2025. The Consumer Price Index (CPI) inflation
rate will moderate from 5.7% in the October-December quarter of 2024 to 4% in the
July-September quarter of 2025, based on RBI forecasts.3

The resumption of government spending, private sector capex growth and the resilience
of domestic consumption, among other factors, may help India’s economy return to
normalcy in 2025. As growth accelerates again, the stage is set for earnings recovery.

Exhibit 1: Private Private Consumption (% Y/Y)

20
Consumption Growth
Gains Momentum
16

12

-5
Dec-20 Jun-21 Dec-21 Jun-22 Dec-22 Jun-23 Dec-23 Jun-24

Sources: CEIC, Morgan Stanley Research. As of November 17, 2024.

Exhibit 2: Consumer Index

160
Sentiment Is Recovering
140

120

100

80

60

40

20
0
May-17 Feb-18 Nov-18 Aug-19 May-20 Feb-21 Nov-21 Aug-22 May-23 Feb-24 Nov-24

Current Situation Future Expectations

Sources: Reserve Bank of India, Franklin Templeton. As of November 2024.

2 India outlook 2025: Imminent recovery, compelling long-term prospects

 Earnings growth recovery and policy factors
Indian equities, as represented by the Nifty 50 benchmark, are likely to see high-single-
digit earnings growth in the current financial year ending March 2025, declining from the
high-teen level growth seen in the previous financial year. This is due to sharp earnings cuts
particularly in the energy, industrials and consumer staples sectors. However, we believe
corporate earnings growth will accelerate to a mid-teen level in the next financial year, in
line with India’s economic recovery. The current consensus forecast puts Nifty 50 earnings
per share (EPS) growth at 14.7% for the financial year ending March 2026 (Exhibit 3).

Exhibit 3: Nifty 50 EPS % Y/Y

50
Growth Appears Poised
40.5
to Accelerate Again 40

30

20 18.8 17.3
13.7 14.7
10.5 9.6 9.6
10 8.2 7.3 6.5

-10 -7.1
-13.4
-20
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25E FY26E

Sources: Bloomberg, Jefferies Equity Research and Strategy. As of December 12, 2024. There is no assurance that any estimate, forecast or
projection will be realized.

The recovery of domestic private consumption and government spending should drive the
improvement of India’s economic momentum. These are also key factors that should
catalyze a reacceleration in corporate earnings growth.

A third factor that we are monitoring is the tailwind arising from stable inflation and a
favorable fiscal policy position. These trends may lead to interest rate cuts in 2025, espe-
cially given the moderation of CPI inflation towards the 4% target rate. As for fiscal
policies—we note that the government’s focus on lowering fiscal deficit may limit policy
flexibility, but additional measures to spur growth recovery in 2025 cannot be ruled out.

We are monitoring whether the government will table further personal income and corpo-
rate tax benefits in its FY26 budget (out in February 2025). Any such announcements will
add on to the stimulative policies rolled out in the current financial year. For instance, the
FY25 budget includes targeted tax cuts and increased deductions for employees, the
value of which is estimated to be US$210 per annum per salaried worker, with a focus on
middle-income employees. Meanwhile, an income transfer scheme that offers a minimum
monthly income to women in selected states also bears watching. If broadened to more
states or even to a national level, this scheme should further strengthen consumption, to
the benefit of the overall economy.

3 India outlook 2025: Imminent recovery, compelling long-term prospects

 We remain mindful of external headwinds; the tariff hikes US president-elect Donald Trump
has proposed represent a key risk to consider. At this stage, we expect the impact of higher
US tariffs to be manageable. Among the major Indian exports,4 electrical and electronic
equipment—which in 2023 accounted for US$9.89 billion or 13% of total exports to the
United States—may take a larger hit. However, this risk is global and not specific to India.
Other major US-bound exports, such as precious stones and metals (13.4% of total) and
pharmaceutical products (10% of total) face limited competition from other markets.
Hence, these products should prove resilient even if they are subject to higher US tariffs,
as they have relatively inelastic demand, enabling them to pass through higher costs.
Meanwhile, we are cognizant of the possibility that the US tariff hikes may be uneven
among countries, with certain countries facing higher levels than others. India may benefit
from this differential.

Long-term growth prospects and high-conviction themes

As economic and earnings recovery takes shape in 2025, we reiterate our confidence that
India’s long-term growth prospects remain strong and firm.

The country should continue to benefit from the political stability and socioeconomic
reforms under the Bharatiya Janata Party (BJP)-led government. Broad-based infrastruc-
ture and manufacturing investments should remain a priority for the country as it aims to
become a vibrant industrialized economy that sits at the heart of global supply chains.
These developments have joined domestic consumption to lay a solid foundation for
self-sustaining economic growth.

All in all, we believe India can comfortably maintain its position as the world’s fast-
est-growing major economy, with GDP growth of around 6.5% until at least 2029 (Exhibit 4).
Income growth and the rise of the middle class will likely continue in tandem. We expect
India’s wealthy and middle-class populations to expand by 400 million people. In partic-
ular, the number of people in India’s wealthiest class could grow three-fold.5

Exhibit 4: India GDP % Growth

8
Growth Leads the Rest
of the World 7

5
4

3
2

1
0
2024 2025E 2026E 2027E 2028E 2029E

■ Advanced Economies ■ Emerging Market and Developing Economies ■ India

Source: International Monetary Fund, Franklin Templeton. As of December 2024. There is no assurance that any estimate, forecast or projection will
be realized.

4 India outlook 2025: Imminent recovery, compelling long-term prospects

 Against this backdrop, we maintain a high conviction in themes associated with consump-
tion, digitalization and health care, among other ideas:

• Consumption and premiumization: Domestic consumption remains the key to both

near-term recovery and long-term prospects of India’s economy. A confluence of
macro factors place consumers at the driver’s seat of India’s growth. Favorable demo-
graphics—characterized by a larger proportion of younger people—have combined
with sustained income growth to spur demand for goods and services, with consumers
increasingly willing to fork out for more premium offerings. We see this in the structural
increase of discretionary spending (Exhibit 5) as part of Indians’ wallet share, relative to
essential products. Notably, the consumer discretionary sector may see compounded
annual earnings growth (CAGR) of 17.3% between financial year 2024 and 2026—the
highest across all sectors.6

Exhibit 5: The Structural Share within PFCE Percapita (%)

54
Growth of Discretionary
Spending 49
42.9%
44
39
34
29 32.1%

24
25.0%
19
14
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2023
March
Food and Beverage Essentials (House Rent, Clothing, Utilities) Discretionary

Sources: CEIC, ICICI Securities. December 12, 2024. Past performance is not an indicator or a guarantee of future results.

• Digitalization and technology: A conscious policy push for digital transformation forms
another key part of India’s growth engine. This is driving multi-year investment opportu-
nities across a broad range of goods and services providers, from online retail and food
ordering to information technology (IT) consulting and outsourcing. Workforce growth,
government support and infrastructure development support the IT landscape in the
country. Investments in artificial intelligence and automation may drive further demand
for India’s technology expertise.

• Health care: In our view, the health care sector is also part of India’s consumption
growth story, similarly benefiting from rising income levels as well as demand for
higher-quality services and lifestyles. We expect to see increased health care spending
in India, potentially supporting the expansion of hospital chains and local specialty drug
production. In particular, hospital operators are well positioned to capture the structural
opportunities stemming from India’s shortage of hospital beds. A low hospital bed
density (Exhibit 6) implies considerable untapped demand and a long runway for
capacity expansion, which should underpin long-term market growth. In the near term,
the health care sector is expected to see earnings CAGR of 16.9% in FY24-26, the
second highest among all sectors.7

5 India outlook 2025: Imminent recovery, compelling long-term prospects

Exhibit 6: India’s Hospital Index
80
Bed Density Relative to 71
10,000 Population 70

60
50
50

40

30 27 28
24 24
20 16
14
10
0
Russia China USA UK Brazil Indonesia India World*

Sources: Global Health Observatory, WHO, CRISIL research, JPMorgan. As of June 15, 2023. *Median value.

Endnotes

1. Source: Reserve Bank of India. December 6, 2024. There is no assurance that any estimate, forecast or projection will be realized.
2. Source: Morgan Stanley Research, India Trendspotting #3. December 17, 2024.
3. Source: Reserve Bank of India. As of December 6, 2024. There is no assurance that any estimate, forecast or projection will be realized.
4. Sources: Trading Economics, the United Nations Comtrade database.
5. Based on Franklin Templeton estimates as of June 2024. There is no assurance that any estimate, forecast or projection will be realized.
6. Sources: Bloomberg, Jefferies Equity Strategy. December 12, 2024.
7. Ibid.

6 India outlook 2025: Imminent recovery, compelling long-term prospects

WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securities are subject to price fluctuation and possible loss of principal.
International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which
could increase volatility. These risks are magnified in emerging markets. Investments in companies in a specific country or region may
experience greater volatility than those that are more broadly diversified geographically.

IMPORTANT LEGAL INFORMATION

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or
solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be
reproduced, distributed or published without prior written permission from Franklin Templeton.
The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as of the publication date and
may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and
may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis
of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy,
stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go
down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee
of future performance. All investments involve risks, including possible loss of principal.
Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in
that connection and, as such, is provided to you incidentally. Data from third-party sources may have been used in the preparation of this material
and Franklin Templeton (“FT”) has not independently verified, validated or audited such data. Although information has been obtained from
sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or
condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be
construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities
(if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this
information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.
Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their
distributors as local laws and regulation permits. Please consult your own financial professional or Franklin Templeton institutional contact for
further information on availability of products and services in your jurisdiction.

Brazil: Issued by Franklin Templeton Investimentos (Brasil) Ltda., authorized to render investment management services by CVM per Declaratory Act n. 6.534, issued on October 1, 2001. Canada:
Issued by Franklin Templeton Investments Corp., 200 King Street West, Suite 1500 Toronto, ON, M5H3T4, Fax: (416) 364-1163, (800) 387-0830, www.franklintempleton.ca. Offshore Americas:
In the US, this publication is made available by Franklin Templeton, One Franklin Parkway, San Mateo, California 94403-1906. Tel: (800) 239-3894 (USA Toll-Free), (877) 389-0076 (Canada Toll-Free),
and Fax: (727) 299-8736. US: Franklin Templeton, One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236, franklintempleton.com. Investments are not FDIC insured;
may lose value; and are not bank guaranteed.
Issued in Europe by: Franklin Templeton International Services S.à r.l. – Supervised by the Commission de Surveillance du Secteur Financier – 8A, rue Albert Borschette, L-1246 Luxembourg –
Tel: +352-46 66 67-1, Fax: +352-46 66 76. Poland: Issued by Templeton Asset Management (Poland) TFI S.A.; Rondo ONZ 1; 00-124 Warsaw. Saudi Arabia: Franklin Templeton Financial Company,
Unit 209, Rubeen Plaza, Northern Ring Rd, Hittin District 13512, Riyadh, Saudi Arabia. Regulated by CMA. License no. 23265-22. Tel: +966-112542570. All investments entail risks including loss of principal
investment amount. South Africa: Issued by Franklin Templeton Investments SA (PTY) Ltd, which is an authorized Financial Services Provider. Tel: +27 (21) 831 7400, Fax: +27 (21) 831 7422. Switzerland:
Issued by Franklin Templeton Switzerland Ltd, Stockerstrasse 38, CH-8002 Zurich. United Arab Emirates: Issued by Franklin Templeton Investments (ME) Limited, authorized and regulated by the
Dubai Financial Services Authority. Dubai office: Franklin Templeton, The Gate, East Wing, Level 2, Dubai International Financial Centre, P.O. Box 506613, Dubai, U.A.E. Tel: +9714-4284100, Fax:
+9714-4284140. UK: Issued by Franklin Templeton Investment Management Limited (FTIML), registered office: Cannon Place, 78 Cannon Street, London EC4N 6HL. Tel: +44 (0)20 7073 8500. Authorized
and regulated in the United Kingdom by the Financial Conduct Authority.
Australia: Issued by Franklin Templeton Australia Limited (ABN 76 004 835 849) (Australian Financial Services License Holder No. 240827), Level 47, 120 Collins Street, Melbourne, Victoria 3000.
Hong Kong: Issued by Franklin Templeton Investments (Asia) Limited, 62/F, Two IFC, 8 Finance Street, Central, Hong Kong. Japan: Issued by Franklin Templeton Investments Japan Limited. Korea:
Issued by Franklin Templeton Investment Trust Management Co., Ltd., 3rd fl., CCMM Building, 12 Youido-Dong, Youngdungpo-Gu, Seoul, Korea 150-968. Malaysia: Issued by Franklin Templeton
Asset Management (Malaysia) Sdn. Bhd. & Franklin Templeton GSC Asset Management Sdn. Bhd. This document has not been reviewed by Securities Commission Malaysia. Singapore: Issued by
Templeton Asset Management Ltd. Registration No. (UEN) 199205211E, 7 Temasek Boulevard, #38-03 Suntec Tower One, 038987, Singapore.
Please visit www.franklinresources.com to be directed to your local Franklin Templeton website.
CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.
The views and opinions expressed are not necessarily those of the broker/dealer; or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent
any broker/dealer policies, procedures, rules, and guidelines.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

US-GTM-3818159-3718159
© 2025 Franklin Templeton. All rights reserved. EME25-INDIA-0125