Indian equities have been underperforming this year, even as there is nothing in the fundamentals to justify that. Nothing in the business cycle momentum justifies it either.
What’s driving the decline is sentiment and foreign selling- much of it from passive funds forced to sell an underperforming market at precisely the wrong time. But foreign investors are missing the bigger picture – India’s macro fundamentals are stronger than ever.
Consider what just happened with the numbers. The market expected a sequential slowdown in the first quarter (Q1FY27) to 7.3%.
Instead, Q4FY26 was revised up to 8.6%, and Q1FY27 came in at 7.8% – and this with oil deliveries severely disrupted through March. Plug the latest numbers into our prediction spreadsheet, and you get 7.5% full-year growth in 2026. Most official forecasts sit a full percentage point below that.
We will admit we were braced for the worst. After our February visits to Delhi and Mumbai, we worried the Iran conflict would swiftly hit confidence and activity, given how much of India’s oil comes through the Strait of Hormuz. And yes, the currency has taken the biggest hit because of this. But excluding that, macros are still strong.
The investment numbers are the tell. Quarterly annualised growth in fixed capital formation jumped from 4.9% in Q4FY26 to 17.3% in Q1FY27 – had investment alone been left in, GDP would have accelerated sharply.
Year-on-year GFCF growth of 11%, against a high base, confirms the business cycle is gathering pace. And this upswing is no mirage.
Since mid-2025, industries producing capital goods have grown significantly faster than the overall industrial production index. Recent readings are the strongest since the Covid rebound. None of this is accidental.
Economy on a strong footing
The entered the war fog with its foundations built on strong and steady pillars.
Start with the banking sector. Non-performing loans sit at 2.2%, and the system is healthy — if anything, lending is underutilised, with bank credit relative to GDP below trend since 2021.
Now it’s turning. Non-food credit grew 16.3% year-on-year in April 2026. Our contacts told us in February that the demand was coming principally from businesses financing new capital spending.
One source mentioned that capital equipment companies were running with 12-month order books. That is a precursor of a boom.
Remember, corporate India spent the last few years consolidating and digesting existing capacity, funding itself from retained earnings rather than borrowing. That phase is over. The credit-fuelled stage of the cycle is about to unfold.
The oil vulnerability itself is not what it was. Generating capacity stood at 514GW at end-2025, up 65% since 2016, with renewables now 40% of the total (excluding hydro and nuclear).
Gas and diesel – the fuels most exposed to Middle East price shocks – account for just 4% of generation capacity. A prolonged oil escalation would still be unwelcome. It would no longer be crippling.
India’s fiscal health improvement needs more attention. Progress in reducing the fiscal debt-to-GDP ratio has been good since 2020 (down six percentage points from 2021 to 57.5% in 2024). Ratings agencies have recognised this progress and three of them upgraded the country’s rating in 2025.
The fiscal deficit, currently at 4.4% of GDP, is steadily falling, and this has been while keeping capex intact. The centre’s public capital expenditure has been maintained at 3.1% of GDP for the last three years. Effective capex spending, including transfers to support state investments and public sector utilities, will be close to 4% of GDP in the coming year.
Compare it with economies like Taiwan and South Korea, which are getting all the FII attention. In May, Korea’s 53% YoY rise in export values was accompanied by a 37% increase in export prices.
Taiwan fares slightly better, with the overall increase in export prices only in the low teens for now. But the concentration of export activity (semiconductors are the only game in town) and the severity of some price increases undermine the apparent strength of the overall export data.
So yes, India will continue to attract negative attention because of its oil dependence. What matters is that the government keeps its eye on improving domestic business conditions while external factors buffet sentiment.
That is the best way through the turmoil: keep laying the groundwork for a higher-return future.
By rights, given strong fundamentals, improving credit growth, and a cyclical upturn, Indian equities should have been among the strongest performers in 2026.
War, oil product shortages and some misplaced fiscal concerns got in the way. For active managers, that is a gift — a chance to accumulate Indian equities cheaply, especially for dollar investors, where the currency sell-off is equally overdone.
We are adding to our long India positions while foreign money continues to misread the country’s underlying strengths. The foundations are well and truly laid.
Disclaimer: This article is for educational purposes only and does not constitute investment advice. The author of this article is the Global Economic Advisor at Equirus Group. The views and recommendations expressed are strictly those of the author, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.