Dear Associate,

The global macroeconomic outlook is currently characterized by a delicate balance between economic growth and managing inflationary pressures. Many economies are grappling with the aftereffects of rising inflation, which, while easing in some areas, continue to exert pressure on consumer spending and business investments. While many economies have shown resilience in the face of recent challenges, concerns persist regarding the potential for a recession. Central banks are confronted with the complex task of curbing inflation while supporting economic activity. Even as geopolitical tensions pose oil supply risks, the ongoing impacts of climate change and the transition to sustainable energy are also shaping economic policies in profound ways. Amidst some of these challenges, there are encouraging signs, with certain regions experiencing a gradual easing of inflationary pressures and a rebound in economic activity.

India's macroeconomic outlook remains positive, with GDP growth expected to be strong, driven by robust domestic consumption and significant government infrastructure investments. India's real GDP growth rate for 2024-25 is expected to be the highest among the emerging markets globally. The government's commitment to infrastructure projects and digital transformation is anticipated to further stimulate growth. However, inflation continues to pose challenges, influenced by fluctuating global commodity prices and supply chain disruptions, prompting the Reserve Bank of India to maintain a vigilant monetary policy stance. External factors, such as global economic uncertainties and fluctuating commodity prices, continue to pose risks. Overall, India is navigating a path of steady recovery while addressing inflationary pressures.

The recent RBI MPC meeting arrived at a pivotal moment as the US Federal Reserve has implemented a substantial 50 basis point cut in its policy rates, prompting central banks in several advanced economies to consider similar actions. In India, the RBI has maintained the repo rate at 6.5%, emphasizing a neutral stance. The RBI held its GDP growth projection for FY25 at an optimistic 7.2%. The forecast for GDP growth is set at 7% for Q2, 7.4% for both Q3 and Q4. The country's GDP has consistently outpaced global averages, driven by strong domestic demand, government initiatives, and a growing middle class. On the inflation front, the RBI anticipates a rate of 4.5% for FY25, with quarterly expectations of 4.1% in Q2, rising to 4.8% in Q3, and slightly easing to 4.3% in Q1 of FY26.

Over the last quarter, Indian benchmark indices have registered notable gains, though some volatility emerged towards the end due to global factors and concerns about domestic valuations. Key influences on the market included robust domestic economic fundamentals, favourable macroeconomic indicators, strong corporate earnings, and ample domestic liquidity, balanced by apprehensions regarding interest rates and valuations. Investors are advised to stay vigilant, keeping an eye on global developments and domestic factors that could shape the market's future direction.

India's current account deficit rose to $9.7 billion or 1.1% of GDP in Q1FY25. The increase was primarily driven by a rise in merchandise trade deficit, even as net services receipts increased during the period. It could come under further pressure with high energy costs. India's forex reserves crossed the $700 billion mark for the first time on record, for week ended September 27th - in the biggest weekly increase since mid-July 2023. India is now only the fourth economy in the world to cross $700 billion in forex reserves after China, Japan, and Switzerland. The investment climate is improving, with increased foreign direct investment in sectors like technology and renewable energy. While the government remains focused on fiscal consolidation, geopolitical uncertainties and global economic fluctuations present ongoing risks that could have an impact.

Against this backdrop, the mutual fund industry is thriving, with average assets under management standing at approximately ₹ 68 lakh crores as of September 2024. The total number of mutual fund folios has reached ~ ₹ 21.05 crores. Increased investor awareness and participation in the market have also fuelled the demand for Passive products, namely index funds and ETFs. Additionally, as more households enter the high-net-worth bracket, the demand for specialized financial instruments is on the rise. Financial institutions are responding by expanding their offerings to include innovative products that deliver greater diversification, higher potential returns, and personalised strategies. In this evolving landscape, alternative investments are gaining traction among high-net-worth investors seeking non-traditional avenues to enhance their portfolios and mitigate market volatility.

Investors should prioritize asset allocation to effectively navigate market fluctuations. Regardless of the market cycle, well-structured asset allocation is crucial for building a robust mutual fund portfolio. Aditya Birla Sun Life AMC is dedicated to meeting the diverse investment needs of our expanding customer base through a wide range of products tailored to various risk profiles. We are committed to delivering exceptional value and an outstanding experience for our investors.



Regards,
A. Balasubramanian

Sources -
1.    AMFI
2.    RBI Monetary policy report - October 2024

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