India Economy 2025: Investment Opportunities and Risks for Global Investors

Written by Haider Saleem
Financial and Political Analyst | LinkedIn / X

In the first quarter of 2025, India posted its best economic growth in a year – 7.4% between January and March – exceeding expectations and fuelling talk of India becoming the world’s fourth-largest economy in the near future[1].

But behind the bullish headlines, there’s a deeper question: Is this momentum sustainable?

In this article, we’ll look at:

1. What’s powering India’s recent momentum,
2. Examine key markets like stocks and bonds,
3. Highlight structural challenges
4. Explore what this means for halal-conscious investors.

What’s Driving the Boom?

India’s Q1 growth was powered by robust manufacturing and private consumption, supported by easing inflation and ramped-up public spending[1]. Inflation has declined steadily, dropping to 3.2% in April 2025 – the lowest level since mid-2019. This has given the Reserve Bank of India (RBI) room to ease interest rates, with a 50-basis-point cut already implemented and more expected later this year[2].

The services sector also remains a bright spot. Economists believe India could benefit from shifting global supply chains as companies look to diversify beyond China[1]. Combined with recovering rural demand and increased infrastructure investment, these trends have created a favourable short-term environment for growth.

Capital Markets: Momentum and Risk

India’s capital markets are surging. The benchmark Nifty 50 index is forecast to reach new record highs by the end of 2025 and continue rising in 2026[3]. While some analysts caution that valuations are stretched, strong foreign inflows and corporate earnings optimism are keeping momentum alive.

On the fixed-income side, India’s government bonds have quietly outperformed many of their Western counterparts. In fact, the 10-year rupee-denominated Indian government bond has delivered 51% more in U.S. dollar terms than its U.S. Treasury counterpart since April 2020[2].

Jefferies analysts suggest that as global investors look beyond G7 debt, India stands out with high real yields, a stable rupee, and an expansionary central bank policy. This has made India’s bonds especially attractive to long-term institutional and emerging market investors[2].

Meanwhile, India’s private market is buzzing. The National Stock Exchange (NSE), though unlisted, now boasts over 100,000 shareholders and is valued at $58 billion, with an IPO appearing imminent[6]. A boom in family offices and fintech deals has drawn both ultra-wealthy and retail investors into this space.

If you’re interested in exploring Indian stocks from a Shariah-compliant perspective, Musaffa’s screening tools can help you check the halal status of listed companies – including those traded on the NSE.

Under the Hood: Is the Hype Justified?

Despite strong headline numbers, some fundamentals raise concern. A recent competitiveness index ranks India the lowest among its Asian peers – behind Malaysia, Vietnam, and Thailand – in terms of innovation, infrastructure, regulatory quality, and access to finance[4].

Labour availability is a strength, but low productivity offsets it. Firms tend to rely heavily on domestic demand, limiting export orientation. Sectors like apparel still focus largely on cotton-based garments, missing the shift toward synthetic alternatives seen in global markets[4].

Complex land laws, monopolistic firm structures in key sectors, and slow judicial processes also constrain India’s growth potential. These structural issues explain why many Indian firms underperform in global trade, even as the country enjoys headline GDP growth.

Valuations are another red flag. With a price-to-earnings ratio of 23.5, Indian equities are more expensive than most global peers except the U.S.[3]. More than half of surveyed analysts expect a market correction in the near term due to this stretched valuation and sluggish large-cap revenue growth[3].

Trump, Tariffs and Trade Tensions

Adding to the uncertainty is India’s complex trade relationship with the U.S. President Donald Trump has temporarily paused a planned 26% “reciprocal tariff” on Indian goods but could reinstate it as early as July[5]. Negotiations are underway, and India has offered steep tariff cuts on certain imports like oil, gas, and almonds – but is fiercely protecting its domestic grain and dairy markets.

India’s high tariff walls – among the steepest in the world – have long attracted criticism. Despite recent trade pacts with countries like the UK and Australia, India remains outside key multilateral blocs such as the CPTPP and RCEP, limiting access to global value chains[4].

For halal-conscious investors, especially those focused on export-driven companies, this trade uncertainty could impact long-term value creation.

Conclusion: Cautious Optimism?

India’s recent performance is impressive, and its long-term fundamentals remain attractive – including:

·   a young population

·   strong services sector; and

·   growing middle class

Yet the country’s competitiveness challenges, high valuations, and trade frictions suggest a need for careful scrutiny.

For Muslim investors seeking halal-aligned growth markets, India may offer opportunities – particularly in listed equities.

References

1. Wall Street Journal, “India’s Economy Overcomes Headwinds,” 31 May 2025.
2. BusinessLine / Jefferies, “Indian bond market showing strength,” 31 May 2025.
3. Reuters, “Indian stocks to hit new highs despite concerns market is expensive,” 27 May 2025.
4. Financial Express, “In the race for exports, India’s competitive edge missing,” 29 May 2025.
5. Financial Times, “India offers US ‘deep’ tariff cuts but shields grain and dairy markets,” 28 May 2025.
6. Bloomberg, “India’s NSE Leads Private Market Frenzy,” 29 May 2025.

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