India’s Goldilocks growth phase set to continue as macro resilience strengthens
India’s economy is poised to remain in a rare “Goldilocks” phase—marked by steady growth and manageable inflation—for at least the next two years, according to Economic Advisory Council to the Prime Minister (EAC-PM) Chairman S. Mahendra Dev. He expects economic growth to stay in the 6.5–7 percent range in FY27, supported by strong domestic consumption, sustained public capital expenditure and improving private investment sentiment.
Speaking after the release of the first advance estimates, Mahendra Dev said the momentum seen in 2025 is likely to carry forward into 2026, with the impact of US tariff actions on India turning out to be “much lower than anticipated earlier.”
FY26 growth at 7.4% provides strong base for the coming years
The optimism stems from the strong FY26 growth estimate of 7.4 percent, released by the statistics ministry. The number confirms that India has rebounded decisively after a phase of moderation, providing a solid base for the next fiscal.
“High domestic consumption and continued thrust on public capex are likely to keep growth around 6.5–7 percent in the next financial year,” Mahendra Dev said. He added that 2026 could also witness higher FDI and FPI inflows, which may lend support to the rupee and improve overall financial stability.
For markets, the stronger FY26 print reinforces India’s position as one of the fastest-growing major economies at a time when global growth remains uneven.
Also Read : India’s Economy Back On Track As FY26 Growth Is Seen At 7.4% On Investment Push
Low inflation to complement growth in a ‘Goldilocks’ environment
A key pillar of the Goldilocks narrative is inflation staying under control even as growth remains robust. The EAC-PM Chairman expects CPI inflation to hover around 4 percent in FY27, a level that supports purchasing power without overheating the economy.
“Next financial year, CPI inflation could be about 4 percent, which is not too high given the low base, even as growth remains stable,” he said.
For investors, this combination of steady growth and moderate inflation is favourable for equities, as it supports earnings growth while reducing the risk of aggressive monetary tightening.
FTAs and export diversification add resilience amid global uncertainty
Mahendra Dev highlighted India’s expanding network of free trade agreements (FTAs) as a key buffer against global trade volatility. According to him, diversification of export markets has helped India withstand external shocks better than expected.
“India has entered into FTAs with various trade partners, which is contributing to diversification of exports. This adds to the overall resilience of exports,” he said.
Although merchandise exports grew a modest 2.6 percent year-on-year to $292.1 billion during April–November FY26, the performance is notable given the uncertain global trade environment. Policymakers expect export growth to improve gradually and contribute more meaningfully to GDP in the coming years.
Private capex shows early revival signals alongside public spending
Another encouraging sign is the pickup in private sector capital expenditure. Mahendra Dev pointed to data showing that corporate investment announcements between April and September touched a decade high of ₹15.1 lakh crore, suggesting improving confidence among businesses.
He cited examples such as Google’s proposed $15 billion investment in AI data centres in Andhra Pradesh as evidence that large global corporations continue to view India as a strategic investment destination, particularly in technology and digital infrastructure.
Key drivers supporting the capex outlook include:
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Continued public infrastructure spending
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Stable policy environment
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Improving balance sheets of corporates
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Growth opportunities in technology, banking and manufacturing
Rupee outlook may improve as capital inflows rise
The outlook for the rupee also featured in the EAC-PM Chairman’s assessment. After emerging as Asia’s worst-performing currency in 2025—weakening about 5–6 percent and touching a record low of ₹91.08 per dollar in mid-December—the rupee could see some appreciation if capital inflows strengthen.
Higher FDI and portfolio investments, coupled with controlled inflation, are expected to provide support to the currency, though global factors will continue to influence near-term movements.
What this means for markets in the near term
For equity markets, the continuation of a Goldilocks phase is broadly supportive. Strong growth expectations, low inflation and policy continuity create a favourable backdrop for risk assets, even as global uncertainties persist.
In the near term, markets may respond positively to:
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Stable macro outlook and growth visibility
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Continued government capex in infrastructure and manufacturing
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Prospects of higher private investment and FDI inflows
However, valuations and global cues will still dictate short-term market movements, particularly for rate-sensitive and export-oriented sectors.
Portfolio impact: how investors and traders may position
For long-term investors, the outlook reinforces the case for staying invested in India’s structural growth story. Sectors likely to benefit include capital goods, infrastructure, banking, technology and consumption-led businesses.
Portfolio implications include:
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Preference for companies leveraged to domestic demand
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Gradual accumulation during market corrections
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Balanced exposure to cyclicals and defensives
For traders, the expectation of stable growth and low inflation suggests a range-bound but stock-specific market, where sector rotation and earnings triggers will play a bigger role than broad index momentum.
Outlook: cautious optimism with an eye on global risks
While the EAC-PM Chairman’s assessment paints a constructive picture, risks remain from global trade tensions, geopolitical developments and financial market volatility. Even so, India appears better positioned than many peers to navigate these challenges.
As Mahendra Dev summed it up, “The Indian economy is in a phase where growth and inflation are well balanced. If policy support and investment momentum continue, this Goldilocks phase can sustain over the next couple of years.”
For markets and investors alike, the message is clear: India’s growth engine remains intact, offering stability and opportunity in an uncertain global landscape.
