India Insights

India’s stronger external buffers and resilient domestic growth are broadening its opportunities, but abundant liquidity and firmer inflation make policy management more complex.

• Real GDP grew 7.8% year-on-year in the three months to June 2026, above the 7.4% market expectation and the RBI’s 7.0% forecast; gross fixed capital formation rose by around 12%, with net exports also contributing.
• RBI measures introduced on 8 June helped attract around USD133 billion through FCNR(B) deposits by end-August, taking total FCNR(B), external commercial borrowings and other foreign-currency borrowing to USD143.5 billion.
• Foreign-exchange reserves increased from USD671.6 billion around the June policy announcement to USD780 billion by mid-September, reducing the risk of a disorderly currency adjustment despite oil-price and global-rate headwinds.
• NIFTY companies recorded their strongest revenue growth in ten quarters, while earnings rose by around 19%; headline credit growth reached about 19%, and foreign investors bought more than USD6 billion of Indian equities after selling around USD29 billion in the first half of 2026.
• Foreign inflows generated banking-system surplus liquidity of INR11.6 trillion in early September, later reduced to around INR7.4 trillion; August CPI accelerated to 4.8% from 4.4% in July, while core inflation reached around 4.2%.

Takeaway: Indian equities benefit from broader domestic earnings growth and renewed foreign participation, while bonds offer carry, positive real rates and diversification; however, investors should favour selective duration because liquidity withdrawal, inflation and higher global yields complicate the outlook.