INDIA Macro Economic Outlook
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India’s growth in FY26 would face adverse global currents, which is likely to get mitigated to a large extent by favourable domestic drivers. We maintain our FY26 GDP growth forecast of 6.4% vs, 6.5% in FY25. The outlook on CPI inflation appears encouraging. We hope FY26 will see a decline in the level of inflation as well as its volatility – on account of surplus rainfall, lack of widespread heatwave conditions, and a softer international commodity price backdrop. We project CPI inflation to ease towards 3.5% in FY26, the lowest in 7 years. Despite the RBI delivering a higher dose of cumulative rate cut vis-à-vis market expectations, the g-sec term premium has hardened considerably, with sentiment turning somewhat cautious after MPC’s swift change in policy stance to ‘neutral’ from ‘accommodative’ earlier. We expect the MPC to remain on pause through Mar-26 and maintain our call of 10Y g-sec yield at 6.20% for Mar-26. Despite USD weakening by more than 10% in 6 months (its worst performance since the suspension of the Bretton Woods in 1973), INR has remained stable. While trade-cum-fiscal policy uncertainty in the US and the growing political pressure on the Fed to ease interest rate undermines USD’s role in international finance, the outperformance by the US amongst DMs is a tailwind. From INR perspective, we remain confident of the macro fundamentals and would look for the contours of the India-US BTA for further cues. We maintain our call of moderate depreciation towards 89.50 by Q4 FY25 as past episodes of global slowdown has generally manifested in a weaker rupee.