India well-positioned amid global trade gloom, tariff wars: SBI Capital Markets

Mint

16-06-2025

Despite a modest improvement in May 2025, global volatility lingers amid a bleak trade outlook and prolonged tariff wars, though India remains well-positioned, supported by fiscal and monetary measures, SBI Capital Markets said in a report on Monday.
The report, Momentum & Murmurs – Trade Winds, Policy Turns, and Geopolitical Undercurrents (June 2025), also warned that US inflation could rebound once stocks of cheaper imports run out, potentially forcing the Federal Reserve to keep rates elevated for longer, raising the risk of a drawn-out tightening cycle.
'While May'25 saw a symptomatic improvement, we are still far from a cure for global volatility. Global growth and trade continue to have a morose outlook, slight gains notwithstanding,' the report said.
'The tariff war seems to have become a protracted affair, engendering structural changes in its wake as optimism of post-Cold War multilateralism finally dies down. India seems attractively positioned by fiscal and monetary policy playing a critical role in navigating these generational changes,' it added.
The global economy continues to reel under rising geopolitical tensions and a renewed wave of protectionism.
In April, US President Donald Trump announced a 27% reciprocal tariff on Indian goods, mirroring duties imposed on other trading partners.
Though subsequently scaled down for India and others, the move stoked global unease, signalling a return to protectionist policies and heightening fears of renewed trade and supply chain disruptions.
At the same time, the war in Ukraine and conflicts across the Middle East are straining critical supply routes, fueling inflation, and weakening business sentiment.
The World Bank has cut its global growth forecast to 2.3% for 2025, 0.4 percentage points below its January estimate, and now projects 2.4% in 2026 and 2.6% in 2027, both slightly lower than earlier predictions.
Collectively, these shocks are clouding the global outlook and mounting pressure on living standards worldwide.
SBI Capital Markets flagged deeper structural shifts reshaping the world economy, noting a strategic reorientation away from decades of global integration.
'Yet key structural shifts and renewed risks are hard to ignore. The world continues its pivot from multilateralism to smaller trade blocs, from USD centrality to a more mixed currency regime, and from global interdependence to strategic autonomy,' the report said.
'With fiscal deficits still wide and transmission gaining traction, bond vigilantes have reemerged—driving US Treasury yields higher and raising the prospect of a more sustained tightening cycle,' it added.
The World Bank expects US growth to slow to 1.4% in 2025, before edging up to 1.6% in 2026 and 1.9% in 2027.
In contrast, India's growth outlook remains stable. The Bank maintained its FY26 forecast for India at 6.3%, consistent with its April South Asia Economic Focus report.
To be sure, the World Bank reports India's data on a fiscal-year basis, unlike the calendar-year format it uses for other economies.
'Despite global headwinds, India posted a robust 6.5% y/y real GDP growth in FY25, supported by fair domestic demand—both PFCE and GFCF exceeded expectations. High-frequency indicators, such as GST collections, point to a continued pickup in economic activity,' the SBI Capital report said.
'Government and household capital expenditure remain firm, anchoring investment momentum, while private capex is more selective and concentrated in a few sectors,' it added.
According to the report, the RBI front-loaded easing with a 50-bps rate cut in June 2025 and a 100-bps CRR cut scheduled for September to boost credit growth in rate-sensitive segments and improve monetary transmission.
However, the RBI's shift to a 'Neutral' stance tempered market expectations, indicating that the rate-cut cycle may be nearing its end.
'We now anticipate at most one more 25-bps cut, contingent on incoming data,' the report said.
Banks, it noted, may face short-term margin pressure as EBLR-linked loans reprice quickly, while deposit costs, especially from older high-rate flows, remain sticky.
'Surplus system liquidity and the upcoming CRR cut should ease funding pressures, supporting a margin rebound by CY26,' SBI Caps said.
'NBFCs, with limited EBLR exposure, gain a breather as funding costs reset lower, boosting spreads. Backed by strong capital, pristine asset quality, and recent record profits, banks are well placed to bear the squeeze,' it added.