India’s economic growth in the second half of the current financial year is expected to remain steady, with strong domestic consumption likely to cushion the slowdown, according to a report by SBI Capital Markets (SBICAPS). The report noted that while global uncertainties and trade tensions persist, India’s internal demand continues to provide stability to the economy.
The report highlighted that with India facing steep 50 per cent tariffs from the United States, policymakers are pushed to rely more on domestic growth levers. Both the Union and State governments have increased their capital expenditure in the year-to-date FY26 period, which is expected to show up in higher gross fixed capital formation.
Realising the importance of domestic consumption, GST rate changes have been timed with the festive season. According to the Confederation of All India Traders (CAIT), festive sales are estimated to touch a record Rs 4.75 trillion this year. Early signs of this buoyancy are visible in auto retail sales, which showed strong year-on-year growth during the Navaratri period.
The SBICAPS report highlighted that global trade remains uncertain, with tariffs now becoming the “new abnormal.” While Chinese exports to the US dropped by 33 per cent in August 2025 compared to the previous year, overall shipments rose by 4.4 per cent, suggesting a supply chain reroute rather than a full disruption. Exporters and retailers have so far absorbed inflationary pressures, though consumers are beginning to feel the impact. The US has avoided imposing duties on critical sectors like electronics and generic drugs, reflecting key trade-offs.
Globally, the report noted a visible shift away from the US dollar as the world’s dominant asset. Central Banks now hold more gold than US Treasuries for the first time in three decades. While no credible alternative has yet emerged, the Chinese yuan and digital currencies have drawn growing attention as countries explore new anchors for the global monetary system.
The report also cautioned that a rush to rebalance investments could lead to asset bubbles. Artificial intelligence, it said, has emerged as the latest frontier for investment, with capital flooding into the sector even as business models remain untested. OpenAI’s valuation touching USD 500 billion exemplifies this trend, though monetisation remains uncertain. The report emphasised that investor discretion is key in such a speculative environment.
Domestically, the Reserve Bank of India (RBI) has moved to ease credit flow by proposing the removal of sectoral caps on large borrowers and relaxing restrictions on acquisition finance. Lending limits for loans against shares, REITs, and InvITs are also being raised. The report said that these steps, along with a more gradual implementation of new capital norms, have lifted the credit-deposit ratio above 80 per cent for the first time in FY26.
Despite foreign portfolio investors pulling out USD 18 billion from Indian equities in 2025, domestic investors have shown strong confidence.
