India has become the fifth-largest economy in the world by GDP ($4.1 trillion) and is expected to grow by around 7% per annum in FY27, making it the fastest-growing major economy globally. It is also one of the most populous countries, with a predominantly young population, making India one of the largest domestic markets and a strong source of skilled, English-speaking manpower.
Over the past year, a range of reforms and initiatives by the Government and other authorities are expected to provide a strong push to the macroeconomic environment and, in turn, support growth in financial markets. These include the following: India’s monetary policy has shifted towards softer rates to stimulate economic growth. The Reserve Bank of India (RBI) has undertaken several measures, including a 125-basis-point reduction in the repo rate through gradual cuts and a 100-basis-point reduction in the Cash Reserve Ratio (CRR) this year. In addition, the RBI has infused liquidity through open market operations (OMOs), including purchases worth Rs 1 lakh crore in December 2025.
These measures aim to spur credit growth and lower interest rates, encouraging borrowing. Once loan growth picks up, pro-cyclical momentum could push growth to the low-to-mid teens on a YoY basis. Banks are also willing to lend, supported by clean balance sheets, while borrowers continue to deleverage.
The government announced direct tax reductions in the February 2025 Budget and GST cuts in September 2025 to increase disposable income and reduce costs. These measures are already showing results, with agricultural growth appearing promising, credit expansion underway and auto sales rising following the GST cut.
India’s regulatory reforms in 2025 are aimed at improving ease of doing business, attracting foreign investment and fostering innovation. These reforms span financial markets, industry, taxation, trade and MSMEs, with a focus on digitalisation, simplification and transparency.
The RBI announced 22 measures to strengthen the resilience and competitiveness of the banking system, improve credit availability and streamline foreign exchange management. Key changes include liberalisation of the external commercial borrowing (ECB) framework.
SEBI has also introduced reforms to widen market participation, strengthen investor protection and enhance India’s global competitiveness.
Restrictions on foreign direct investment (FDI), particularly in insurance and defence, have been eased, improving access for global investors.
Labour laws have been consolidated from 29 statutes into four Labour Codes, simplifying compliance while safeguarding worker welfare.
Expansion of single-window clearance systems, including the National Single Window System (NSWS), has reduced approval timelines for new projects.
GST simplification has led to fewer rate slabs and easier filing for small enterprises.
Digitisation of customs and export procedures has improved efficiency and transparency.
MSMEs now benefit from simplified registration and improved access to credit, including digital onboarding and collateral-free loans. In FY25, MSMEs’ share of new non-food credit increased due to lower interest rates, government credit guarantees, data-driven underwriting and reduced stress levels.
Overall, these measures are expected to boost capacity utilisation, encourage fresh investments and position private capital expenditure as a key growth driver.
A favourable US–India trade deal could strengthen investor confidence, attract foreign investment and stabilise the rupee. Recent developments, including a 10-year defence agreement, suggest progress towards such a deal. Lower tariffs could support export-oriented sectors by improving earnings visibility.
Rural consumption has improved, reflected in higher tractor sales, lower MGNREGA demand and rising consumer goods volumes, supported by a strong monsoon.
The 8th Pay Commission recommendations and arrears, expected to take effect by FY27, could further boost consumption in automobiles, consumer durables and mid-to-low-income housing.
India has also become the world’s second-largest e-commerce market by number of online shoppers. Sectors such as travel, leisure, SUVs, luxury housing and quick commerce are seeing strong growth, driven by premiumisation and increased formalisation.
India’s capex cycle is expanding into areas such as energy transition, defence manufacturing, data centres, semiconductors and electronics. Supported by policy incentives, these investments are aimed at sustainable, resilient and high-tech growth. Private sector participation in these segments is steadily rising.
Financials: Banking and NBFC stocks are expected to see strong earnings growth in FY27E, driven by credit recovery, margin expansion and better asset quality. Retail loans, mortgages and MSME credit are leading the recovery. NIMs are likely to benefit from deposit repricing, surplus liquidity and policy easing. MFIs may also see asset quality improvement.
Metals: Supported by domestic demand and government policies, the sector could benefit from developments in China, including the “anti-involution” policy and the Five-Year Plan, potentially acting as catalysts until March 2026.
Cement: Consolidation, housing recovery, rural demand, government capex and cost efficiencies, along with price hikes, are likely to support profitability and re-rating.
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(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)