The 90% Warning: Will India’s Markets Withstand a U.S. Recession?

By Rakesh Kolipaka

In the hushed halls of Apollo Global Management, the firm's Chief Economist Torsten Sløk shook the financial world with a bold prediction—there's a 90% chance the U.S. will go into recession in 2025.

That figure wasn't only big—it was booming. It resonated on trading floors and boardrooms, transmitted by headlines and anxious mutterings in market chatrooms. Although its epicentre was in America, the shockwaves, as history would prove, would not be contained within one continent. Globally, in India's rapidly developing financial markets, individuals started to prepare for the shake.

The American Domino

To get a sense of why India gives so much importance to an economic slump halfway across the globe, one needs to first comprehend the umbilical cord between the two countries. The United States is not only a trade partner but also a source of capital, sentiment, and strategy. When Wall Street sneezes, Dalal Street tends to catch a cold.

In Sløk's opinion, this possible recession is unlike before. It would not be the classic boom-and-bust due to overheating or asset bubbles. Rather, he identifies trade wars—tariffs, barriers, and dislocated supply chains—as the perpetrators. The casualties? Small and medium-sized enterprises that constitute the backbone of the U.S. economy. And by extension, the world economy, and India's too.

Echoes from the Past

India has weathered American recessions before, though each time the experience has been different.

Back in 2008, as the global financial crisis unfolded like a slow-motion catastrophe, Indian equity markets tanked. The Sensex, once soaring on the wings of optimism, dropped like a stone—nearly 60% in just ten months. Foreign institutional investors, who had pumped billions into Indian stocks, pulled the plug and moved their money to safer shores. The rupee weakened, corporate investments paused, and for a while, uncertainty loomed like a fog.

But India was not to go down without a struggle. By mid-2009, a mix of fiscal stimulus, robust domestic demand, and policy clarity had the markets recover surprisingly quickly.

Then came 2001, a more subdued recession triggered by the dotcom bubble bursting. While American giants crumbled, the scenario was different in India. U.S. corporations, reining in expenses, approached Indian IT companies for lower-cost talent and outsourced operations. Infosys, Wipro, and TCS expanded—not contracted. The BSE Sensex fell, but the economy discovered an unlikely friend in distress.

And who can forget the COVID-19 shock of 2020? As the virus left the world crippled, financial markets collapsed under fear. But in what appeared to be economic whiplash, Indian markets pulled off a dramatic comeback—driven by global liquidity, digital adoption, and investor sentiment.

Looking Ahead: The 2025 Storm

This time, though, the clouds have a different colour. Sløk's warning has a geopolitics basis—tariffs aimed at hurting China, but bound to hurt others as well. If the American consumer reduces spending, Indian exporters are going to suffer. If the global supply chains get pinched, Indian manufacturers might not be able to shift fast enough. If investors become nervous, capital can take flight.

Indian equity markets, which have had a long bull run, may suddenly feel vulnerable. Export-oriented industries such as IT services, pharma, and specialty chemicals might experience margin squeeze. Foreign investors—still sitting on large pieces of Indian blue-chips—may rebalance out of emerging markets, triggering a sell-off.

But as ever, the whole picture isn't painted in panic.

Parts of the Indian economy may discover opportunity in adversity. A China divestment trend could spur India's emergence as a manufacturing option. The government's Production-Linked Incentive (PLI) programs are already setting the stage. A U.S. rate cut prompted by a recession could direct yield-hungry investors towards Indian bonds, arresting some capital outflows. India's domestic consumption, commonly underrated, can be a shock absorber once more.

How India can benefit from a recession in the US

While global investors brace for a potential U.S. recession, analysts at Bernstein believe India could quietly emerge as a surprise winner. Despite being the world’s fifth-largest economy, India’s financial trajectory has often moved independently of the U.S., thanks to its robust domestic demand, structural reforms, and growing consumption base.

According to a report from investing.com, Bernstein turned bullish on Indian equities earlier this year, shifting from a cautious 2024 stance. They argue that India’s economic resilience, supported by strong fiscal management and vibrant manufacturing and services sectors, makes it an attractive haven for global capital reallocation.

As the U.S. economy slows and risk appetite wanes in developed markets, investors may increasingly look to India’s stable macroeconomic story for long-term growth. In this scenario, a downturn in the West could very well set the stage for a bull run in the East.

The Human Face of the Market

Behind statistics and trends is a more personal story—that of the Indian investor.

In the past couple of years, more retail investors have entered the market than ever before. First-time Demat accounts are at an all-time high. SIPs in mutual funds are increasing every month. Young investors are learning the markets not from textbooks but from memes, YouTube channels, and finfluencers. Most of them have never experienced a prolonged bear market.

 As the prospect of a recession looms, so too does the test of temperament. Panic selling, driven by red graphs and social media frenzy, is always a risk. Yet those who remember 2008—or even March 2020—know that bear markets, however cruel, eventually run out of breath.

Veteran investors will probably turn their focus to quality—firms with uncluttered balance sheets, stable cash flows, and pricing power. They will find safety in industries linked to domestic demand: infrastructure, FMCG, and banking. They will eschew over-leveraged wagers and try to balance portfolios with gold or government bonds.

Because in such times, survival tends to take precedence over returns.

Lessons from the Past, Eyes on the Future

India's tale has always been one of toughness. It might flex under strain, but it seldom snaps. Even during the bleakest economic winters, there have been glimmers of spring: a new policy, a new innovation, a new entrepreneur.

 If recession does hit in 2025, it will pain. There is no avoiding that. But it will also test the robustness and possibly the maturity of India's capital markets. In this crisis, there might be not only dangers to be avoided, but opportunities to be grabbed.

The markets will yell, the headlines will scream, and the din will be cacophonous. But underneath the frenzy, there will be a narrative unfolding. A narrative of restraint. Of astute deployment. Of patience.

And for those who will hear, that story may well be worth the investment.