Citi’s Outlook for India in 2024: Will the Stock Market’s 'Frenzy' Persist? Bond and FX Performance Hinge on This Outcome

India has become this year’s global investment 'darling': its economic growth has outperformed expectations, its stock market rally has been 'unstoppable', its market capitalization has surpassed USD 4 trillion, and the Nifty 50 index has risen nearly 18% year-to-date—on track for an unprecedented eight-year consecutive gain. As we enter 2024, can India’s economy withstand the market’s 'affection', and can its record-high stock market continue to climb? In early December, Citi’s India economics team, along with its equity and fixed-income strategy teams, released the report 'India Outlook 2024: Shining Through the Election Fog', offering a forward-looking assessment of major asset classes in India for 2024: Fundamentals: With the dissipation of adverse global factors—including rising global interest rates, a strengthening U.S. dollar, and surging oil prices—India’s economy is expected to maintain robust growth. India’s GDP growth for FY2024 (April 2023–March 2024) is projected at 6.7%, moderating slightly to 6.2% in FY2025 due to global economic slowdown. Indian Equity Market: For 2024, we anticipate strong earnings growth and maintain a constructive view on the Indian market. The Nifty’s year-end target for December 2024 is set at 22,500 points, implying a forward P/E ratio of 19x and approximately 5% upside from current levels. Although foreign inflows into Indian equities have been frenzied this year, Citi’s index shows that India’s overweight position in investors’ emerging-market portfolios has declined. Indian Bond Market and Rupee: Global nominal interest rates may decline, and a U.S. recession appears imminent. Indian monetary policy is likely to shield domestic assets from risk-aversion or deleveraging headwinds, paving the way for gradual rate cuts. We expect yields to ultimately fall, while the Indian rupee remains stable. Notably, 2024 is India’s general election year; the election outcome will influence the trajectory of Indian equities and other asset classes. However, Citi currently expects Prime Minister Modi’s party to win, preserving so-called political continuity and posing relatively low risk to markets. Fundamentals: India’s FY2025 GDP Growth May Ease to 6.2% Amid Global Headwinds Citi notes that India will continue delivering strong performance as adverse global factors—including rising bond yields, a stronger U.S. dollar, and higher oil prices—subside. Easing inflation will create room for accommodative monetary policy. Yet, cyclical softening in both external and domestic demand will modestly slow growth in FY2025. Despite external headwinds, India’s 2023 growth exceeded expectations, and risks stemming from the 2024 national elections appear relatively low—reigniting hopes for improved capital flows and a revival in private capital expenditure. Emerging global headwinds could reduce global growth by 70 basis points to 1.9%, while a U.S. recession looms. For India, GDP growth is projected to moderate modestly from 6.7% in FY2024 to 6.2% in FY2025 (April 1, 2024–March 31, 2025), amid headwinds to both domestic and external demand—though prospects remain for a capital expenditure recovery. India may lower its FY2025 fiscal deficit target to 5.6%, though achieving the medium-term target of 4.5% remains challenging. Broad-based easing of inflationary pressures, coupled with reduced pressure from a stronger U.S. dollar, will allow the Reserve Bank of India (RBI) to begin gradually lowering its policy rate from mid-2024. The RBI may initiate monetary easing with a first 50-basis-point cut in June 2024. If headline CPI averages 4.5% in FY2025, that should be sufficient to justify such a mid-2024 rate cut.

Spillover Effects of the Hormuz Crisis: Energy Price Surge, Capital Flight, and Systemic Pressure on India’s Economy

Amid deteriorating current-account balances and massive capital outflows, the Indian rupee’s exchange rate against the U.S. dollar has continued weakening—repeatedly hitting record lows—and has become Asia’s worst-performing major currency since 2026. Depreciation pressure and the risk of foreign-exchange reserve depletion have intensified simultaneously, subjecting the Reserve Bank of India (RBI) to unprecedented challenges in exchange-rate management and reserve stabilization. Foreign-exchange market trading data show that since the outbreak of Middle East hostilities and the closure of the Strait of Hormuz, the rupee has depreciated over 5% against the U.S. dollar. From the start of 2026 through mid-May, the rupee’s year-to-date depreciation has exceeded 6%, hitting a new all-time low on May 12. Among Asia’s major currencies, the rupee ranks first in both depreciation magnitude and volatility risk—its exchange-rate resilience and market confidence having eroded comprehensively. Devesh Wakhlu, Chief Research Officer at HDFC Securities, stated bluntly: 'Rising risk aversion, uninterrupted foreign-capital outflows, and energy-driven deterioration in the balance of payments—these three factors are converging, rendering the rupee the worst-performing Asian currency thus far this year.' Compared with other Asian emerging-market currencies, the rupee’s depreciation pressure is more persistent and systemic: many other Asian economies possess manufacturing export advantages and resilient current accounts—some even run trade surpluses—enabling them to offset capital outflow pressure via export earnings. In contrast, India—a net commodity importer—has long run current-account deficits; rising energy prices further widen this deficit gap. Without sufficient current-account surpluses to underpin exchange-rate stability, India can only passively deplete foreign-exchange reserves and introduce regulatory measures to counter depreciation pressure—significantly heightening the passivity of its exchange-rate management. Persistent depreciation, in turn, exacerbates macroeconomic risks. A weaker rupee directly raises India’s dollar-denominated import costs for energy, commodities, and critical equipment—intensifying imported inflation and creating a vicious cycle: 'rising oil prices → rupee depreciation → higher import costs → worsening inflation and current-account deficit.' Moreover, currency depreciation amplifies foreign investors’ foreign-exchange losses, reinforcing capital-exit expectations and making it difficult to break the negative feedback loop between exchange-rate depreciation and capital flight. For the RBI, balancing upward inflationary pressure and maintaining monetary-policy stability—while simultaneously defending the exchange-rate floor and preventing rapid foreign-exchange reserve depletion—places monetary and exchange-rate policies in a bind, severely constraining its policy space. To curb the rupee’s rapid depreciation and stabilize foreign-exchange market expectations, the RBI has been forced to implement intensive intervention measures: continuously selling U.S. dollar reserves in the foreign-exchange market to absorb rupee liquidity, thereby supporting the exchange rate through direct supply-demand adjustment; and introducing rare cross-border capital-flow regulations—tightening foreign-exchange payments for non-essential imports and standardizing overseas investment and consumption-related foreign-exchange conversions—to reduce foreign-currency outflows on the funding side. Yet these interventions have yielded limited results. Until the root causes—energy shocks and capital flight—are resolved, the underlying logic driving depreciation remains unchanged; central-bank intervention can only delay, not reverse, the trend—while also carrying the added risk of continuous foreign-exchange reserve depletion. According to analysts at the Abraham Supply Chain Research Institute (a subsidiary of Abraham Supply Chain Management [Suzhou] Co., Ltd.), 'The RBI’s interventions are essentially “passive defense.” A currency lacking industrial competitiveness and export-earnings capacity cannot be stabilized over the long term solely through reserve depletion—the rupee’s depreciation trend is unlikely to reverse in the near term.'

Citi Sees India Tightening Currency Controls to Halt Rupee Slump

May 19, 2026

Citigroup forecasts India may tighten currency controls and hike edible oil import duties to counter rupee depreciation caused by soaring global oil prices. Policies aim to stabilize reserves while managing energy supply disruptions and balance of payment deficits.

bloomberg

2026-05-19

Citi Sees India Tightening Currency Controls to Halt Rupee Slump

Citi Sees India Tightening Currency Controls to Halt Rupee Slump

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