Structural, Sustainable Growth
7.3%
FY26 GDP growth forecast
Highest among top X economies by size
Source: IMF
July 8, 2025
Will India’s Electronics Industry Leapfrog Over ‘Screwdriver Work’?
2 min read
December capped a resilient yet uneven 2025 for Indian markets. Early in the year, emerging markets outperformed amid mixed global signals, but this divergence proved short-lived. By mid-year, uncertainty stemming from Trump-era tariff threats and shifting timelines around the US–India trade deal weighed on foreign flows, despite strong domestic fundamentals and central bank easing. Over the year, markets navigated these cross-currents, with MSCI India up ~3%. However, it lagged MSCI EM’s broader ~31% and MSCI DM’s ~19% gains, which were driven largely by AI, Technology, and semiconductor-led rallies that dominated global risk appetite.
On the currency front, the rupee depreciated ~5% YTD, making it one of the weakest major EM currency in 2025 excluding inflation outliers, an outcome uncharacteristic of India’s historical EM positioning. While the RBI has reiterated that it does not defend any specific exchange-rate level, it moved to contain disorderly volatility through calibrated intervention. Measures included ~US$33.4bn of open-market bond purchases and ~US$15bn in three-year USD/INR buy-sell swaps, helping inject liquidity, rebuild reserves synthetically, and preserve policy flexibility during periods of seasonal tightness. Against this backdrop, FPI flows emerged as a defining feature of the year. Cumulative CY2025 FPI net outflows reached ~US$19bn, reflecting pressure from a firm dollar, rise in yields, and prolonged uncertainty around trade negotiations. As global capital gravitated toward AI and technology-heavy markets, conviction toward broader EM allocations weakened, with India also seeing selective de-risking amid extended India–US trade timelines.
Full Article
Some Sample Headline
December capped a resilient yet uneven 2025 for Indian markets. Early in the year, emerging markets outperformed amid mixed global signals, but this divergence proved short-lived. By mid-year, uncertainty stemming from Trump-era tariff threats and shifting timelines around the US–India trade deal weighed on foreign flows, despite strong domestic fundamentals and central bank easing. Over the year, markets navigated these cross-currents, with MSCI India up ~3%. However, it lagged MSCI EM’s broader ~31% and MSCI DM’s ~19% gains, which were driven largely by AI, Technology, and semiconductor-led rallies that dominated global risk appetite.
Notably, this external caution stood in sharp contrast to India’s domestic macro resilience. High-frequency indicators such as expanding PMIs and steady GST collections consistently pointed to stable underlying activity. This strength was reflected in GDP outcomes, with growth sustaining momentum at 8.2% YoY in Q2FY26 and FY26E revised upward to around 7.3%. The expansion was driven by continued capex traction and services-led growth, even as nominal growth moderated in a low-deflator environment. Fitch Ratings revised India’s GDP growth forecast for FY2026 to 7.4% from 6.9% projected earlier.
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Policy reforms during the year reinforced this macro stability. Income-tax cuts and GST 2.0 rationalisation supported household affordability and facilitated price pass-through, strengthening the disinflationary impulse. Accounting for favourable base effects alongside these reforms, headline CPI eased to below 1% by November, while core inflation moderated to ~4.3%. Complementing this backdrop, liquidity conditions remained comfortable in December, supported by active RBI operations including open-market bond purchases and USD/INR swap auctions, helping preserve money-market stability and reinforce monetary policy transmission. For the broader market during 2025, earnings through the year pointed to a selective recovery.
Over the past two years, domestic liquidity led by steady SIP inflows has provided a consistent buffer, absorbing periods of FPI volatility. As we head into the 3QFY26 earnings season, the key focus areas will be demand sustainability, margin trends, and capex execution, especially in the backdrop of moderating central capex momentum in 2HFY26. External risks also remain fluid — the evolving US–Venezuela tensions and their impact on crude prices, progress on the India–US trade agreement, and rupee moves amid FPI outflows will be important macro swing variables. While policy support, domestic liquidity, and cyclical consumption strength provide a constructive setup for 2026, the market remains sensitive to two downside risks: earnings disappointment and delays or setbacks in trade-deal progress, which could temper sentiment despite otherwise supportive domestic fundamentals.
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Vikram Desai
President - DSP Group and DSP Investments
Kalpen Parekh
MD & CEO - DSP Mutual Fund
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Underrepresentation in Global Indices
1.9%
Of MSCI ACWI
Under-represented despite contributing 4% of global GDP
Source: IMF