India has been witnessing a transformation like no other, a burgeoning ecosystem of startups, in particular those addressing deep tech and agriculture need, competition among Indian states to become investment and innovation hubs and a lending boom driven by digital credit enablement system that could give several million previously unbanked people access to financing. The central bank has pumped in a lot of liquidity into the system even as macro numbers look good. With Fiscal deficit and inflation remaining under control we are likely to witness a positive growth trajectory. This is despite risks that include valuations, geopolitics, low productivity in the farm sector, climate change and the bottlenecks created by strained bureaucratic and judiciary capacity.
With a 6.5% GDP growth rate, India stands as the fastest growing economy in the world and remains a key driver for global growth. Inflation fell to 2.5% for the month of June 2025, the lowest level since February 2019. Food inflation also eased significantly during the month of May. Yields on government securities in India are at one of the lowest levels. We have a very interesting situation where preserving capital through asset allocation and reducing risk takes precedence.
We expect the growth to continue owing to the visible confidence levels in the markets, supported by the conversion of household savings into investments. We think that India is well cushioned against global uncertainties, well supported by rising foreign exchange reserves, a manageable current account balance, and steady inflows of foreign investment. A surplus on the Current Account largely buoyed by strong services exports and steady remittances from Indians living abroad has further cushioned the Indian markets against major shocks and given it the much-needed boost.
A supportive liquidity measure with the central banks cutting rates, whilst viewed as a response to a sluggish credit cycle by some, is expected to bring about increased consumer spending especially in sectors like real estate sector and automobiles as interest rates witness a significant decline. We expect to see the impact of these measures play out in the coming months.
A critical July 9th tariff deadline looms over India, likely to impact the Rupee and external finance if a reasonable trade deal with the US is not arrived at. Having said that, a significant likelihood of a positive outcome will continue to buoy the Indian markets into double digit growth in FY26.
A positive monsoon, a good crop and the upcoming festive season are a few factors that are likely to drive a revival in the economy over the coming months, thus reviving the investments landscape. Whilst some sectors like defense continue to remain overvalued, others largely remain fairly priced based on their fundamental strength.
Overall, we think that a bottom-up stock selection should work well in a market like the one that we’re likely to see in the coming months. The focus should be on building portfolios that invest in compelling growth stories, avoiding FOMO and look for safer investment options that will remain ‘buy and hold stories over the long term.
