India's nowcast.
Still the fastest, but no longer flawless.

India retains its title as the fastest-growing large economy in the world, with the RBI projecting FY27 growth of 6.6 percent - a rate every other major economy would envy. But 2026 introduced friction into what had been an almost flawless narrative. The central bank trimmed its growth forecast from 6.9 percent, the rupee fell to record lows near 92 per dollar in its worst month since 2022, and the equity market corrected sharply from valuations that had priced in perfection. None of this dents the structural story - favourable demographics, a domestic-demand-driven economy, an ongoing capex and manufacturing push - but it is a reminder that even India's growth is cyclical, and that its asset prices had run ahead of even its impressive fundamentals.

India's growth is unusually self-contained - driven by domestic consumption and investment rather than exports, which insulates it from the trade wars battering more open economies. The capex story is central: public infrastructure investment, a manufacturing push backed by production-linked incentives, and a private capital cycle that is gradually broadening. The RBI's modest downgrade reflects a few crosscurrents: global trade uncertainty weighing on the export-exposed segments, the lagged effect of earlier monetary tightening, and a high base. But 6.6 percent is a downgrade only by India's own elevated standards. The economy is decelerating from exceptional to merely excellent, which is a very different problem from the stagnation afflicting the developed world.

The cyclical complications cluster around inflation, the currency and asset prices. CPI is running near the 4 percent target with the RBI projecting around 4.6 percent for FY27, comfortable enough to allow a neutral stance but not low enough to invite aggressive easing. The rupee's slide to record lows reflects a firm dollar, a hawkish Fed that caps how much the RBI can ease without currency consequences, and portfolio outflows as global investors trimmed richly valued Indian equities. The equity correction - the Nifty and Sensex falling several percent around the 2026 Budget - was a valuation reset rather than a fundamental break. Together these are the symptoms of an economy and market that had been priced for flawless execution meeting a more normal reality.

Our base case is continued sector-leading growth near 6.5 percent, inflation contained near target, an RBI on hold or easing cautiously with one eye on the rupee, and an equity market that consolidates its valuation before resuming its structural uptrend. The downside risks are external - a firmer dollar and hawkish Fed that pressure the rupee and force the RBI to stay tighter than growth would warrant, or a global risk-off that triggers portfolio outflows. The upside is the structural story reasserting itself: a broadening private capex cycle and continued reform that lift growth back toward 7 percent. India remains the developed and emerging world's premier structural growth story; 2026 simply reminded investors that even it has a cycle and a price.