India’s nominal GDP growth is projected to increase to around 11% in FY27, with real growth at 7.2%, driven by domestic credit-led consumption and policy support, according to a report by SBI Mutual Fund. The report expresses optimism on growth in the medium term, citing structural reforms and premiumization as key drivers, despite concerns over global slowdown and geopolitics. In FY26, real GDP growth averaged 8% year-on-year in the first half, while nominal growth remained subdued at 8.8%.
The report anticipates inflation to mean-revert to about 4% in FY27, with the Reserve Bank of India (RBI) likely to maintain a policy pause unless global growth deteriorates. Recent liquidity measures, including a Rs 2 trillion Open Market Operations (OMO) round and a $10 billion buy-sell swap in mid-January, were highlighted by the mutual fund.
The outlook for rural spending is cautiously positive, supported by welfare measures and low inflation countering the kharif income setback. The report mentions that a potential India-US trade deal could marginally benefit the growth outlook, although India faces strong competition from the increasing dominance of Chinese exports. Fiscal deficit is expected to ease to 4.2% in FY27 from an estimated 4.4% in FY26, while state deficits remain high. Government bond supply might increase to Rs. 29 trillion, maintaining tight demand-supply dynamics.
The report attributes the rupee’s nearly 5% depreciation in 2025 to hedging demand, leading to higher forward premiums in India and increased Indian fixed income yields. Factors such as lower inflation compared to the US, stable crude prices, fiscal discipline, and a current account deficit (CAD) below 1% of GDP continue to support Indian assets and the rupee. The fund house recommends a bottom-up focus on consumption, financials, and select industrials as key strategies.
