India’s real GDP growth is expected to moderate further to 6.2% in FY26 from 6.5% in FY25, according to a recent forecast by Japanese brokerage Nomura. The report highlights a divergence between tax revenues and other key growth indicators, such as auto sales and credit expansion. Despite the slowdown, equity markets remain resilient, driven by robust domestic fundamentals. Nomura has also revised its March 2026 Nifty target upwards, citing positive macroeconomic signals. Meanwhile, BofA Securities warns of stretched valuations but maintains a bullish long-term view on India, underpinned by structural growth themes and rising productivity.
Economic Growth Set to Decelerate Further in FY26
India’s growth trajectory is poised for a further deceleration, with Nomura projecting a decline in real GDP growth to 6.2% in FY26 from an already slower 6.5% in FY25. This is a noticeable retreat from the robust 9.2% expansion recorded in FY24. The Reserve Bank of India, however, continues to maintain a stable outlook, anticipating growth to hold steady at 6.5%.
Nomura’s caution is grounded in what it terms a "divergence" in macro indicators. While Goods and Services Tax (GST) collections remain strong, other high-frequency indicators—including automotive sales and bank credit expansion—signal a more subdued underlying momentum in the economy.
Market Valuations and Upward Nifty Revision
In contrast to slowing GDP figures, India’s equity markets have demonstrated notable resilience. Nomura attributes this strength to positive domestic macroeconomic fundamentals, including declining bond yields and the steady inflow of domestic investments. Reflecting this optimism, the brokerage revised its Nifty 50 target for March 2026 to 26,140 points, up from the earlier forecast of 24,970.
This revision suggests investor confidence remains intact despite global headwinds and domestic earnings downgrades. The report adds that Indian equities, due to their relatively low beta, are benefiting from consistent domestic liquidity flows that help cushion against international volatility.
Global Headwinds and Sectoral Preferences
Nomura’s analysis suggests caution when it comes to sectors with high exposure to international markets. Given persistent global economic uncertainty, the brokerage favors domestic-oriented sectors over export-driven industries. It also anticipates delays in India's capital expenditure (capex) cycle as global instability weighs on corporate risk appetite.
Consumption, meanwhile, could see a rebound. The report notes that consumption-focused stocks have lagged since their peak in September 2024. However, the present environment—characterized by low inflation, prospective interest rate cuts, and potential income tax relief—could act as catalysts for renewed demand.
BofA Securities Flags Caution on Valuation
Echoing some of Nomura’s concerns, BofA Securities presented a more cautious view on Indian equity valuations, suggesting that they appear “full” in the near term. Nevertheless, the U.S.-based brokerage affirmed its long-term confidence in India’s structural strengths.
It outlined nine enduring macro themes that position India as a high-potential market for long-term equity gains. These include accelerated infrastructure investment, digital transformation, financial inclusion, and rising productivity. BofA underscored that these factors could continue to drive strong performance among high-growth, compounding stocks in India.
Conclusion: A Balancing Act of Growth and Resilience
While headline GDP growth may decelerate, India’s broader economic narrative remains compelling. Structural reforms, robust domestic consumption, and prudent macroeconomic management offer a counterbalance to global uncertainties. Equity market resilience and sustained investor interest further support the view that India continues to be a key player in the emerging markets landscape. However, navigating valuation concerns and maintaining policy discipline will be critical as the country enters a more tempered phase of economic expansion.
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