India’s Economy Faces Turbulent Times Amid Global Conflicts
Hello from Singapore! It’s a bit chaotic here, and I wanted to share some updates from India—an economy that’s been grabbing attention lately.
Indian markets are currently feeling the effects of the ongoing conflict in Iran, which has led to a significant withdrawal of foreign investments. Although prices have dropped to record lows, fund managers believe that merely low valuations won’t bring investors back.
Market Reaction
For quite some time, trade issues with the U.S. were seen as a major hurdle for Indian stocks. However, after a trade agreement was signed in February, foreign investors rushed in, contributing nearly $2.5 billion. But just a month later, sentiments flipped dramatically.
In March, the Nifty 50 index suffered its worst decline ever, tumbling more than 10% as foreign sellers offloaded over $12 billion in stocks. Presently, the index stands at a price-to-earnings ratio of 19.6—a figure that is quite rare in recent years. It’s only dipped to this level twice since 2010: once at the pandemic’s start in 2020 and again at the onset of the Russia-Ukraine war in 2022.
This led me to ponder whether the market is overreacting or if this could be a strategic moment to invest in what many call the ‘India growth story.’
Economic Challenges
Pramod Gubbi, a co-founder of Marcellus Investment Managers, notes that India’s structure may be vulnerable due to escalating conflicts in the Middle East. If the situation doesn’t improve soon, it could exacerbate issues with fiscal deficits, inflation, and the currency, thereby affecting demand and revenue growth.
Gubbi highlighted that revenue growth has already been sluggish for over a year and the current situation might worsen this trend. He expressed concerns similar to those raised by India’s Chief Economic Adviser, V. Anantha Nageswaran, who is wary of the substantial risks stemming from rising energy prices and supply chain disruptions associated with the Iranian crisis.
Nageswaran anticipates a slowdown in growth, estimating that India will expand between 7.0% and 7.4% for the fiscal year ending in March 2027. He foresees a significant widening of the trade deficit, cautioning that these factors could lead to a current account deficit.
To address these pressures, the Indian government has implemented measures to stabilize the rupee and has also cut excise taxes on fuel to keep prices in check and curb inflation. However, while the rupee has gained some strength, Nitin Jain from Kotak Mahindra Asset Management argues that artificially low fuel prices could jeopardize government spending on essential activities.
Declining Earnings
Though some of these market stresses might be fleeting if the conflict resolves quickly, the underlying issue of weak revenue growth tends to linger. According to reports from Ambit Capital, the profits from April to December 2025 saw the most significant drop in four years. This raises the question of whether lower valuations alone can entice foreign investors back to the market.
India has long boasted a premium valuation, supported by rising disposable incomes and job creation. However, analysts have noted a shift, with rising concerns about the reliability of this growth narrative. Currently, India’s foreign direct investments are resting between $1 billion to $2 billion, which is notably low compared to nations like Brazil and Vietnam.
Experts indicate that while multinationals still see potential in India’s consumption market, the country’s struggle to generate more white-collar jobs is detrimental to its growth story. A recent report highlighted that only a small fraction of graduates find stable employment within a year of finishing their education.
Key Updates
Bharti Airtel’s Data Center Division: The telecom giant has secured $1 billion in funding for its data center arm, with contributions from Alpha Wave Global and Carlyle, among others.
CEO Appointment at Indigo: Veteran William Walsh, who has extensive experience in the aviation industry, will take the helm at Indigo in early August.
Impact of Tax Cuts on Revenue: The Indian government recently cut excise duties for petrol and diesel by 10 rupees per liter to prevent price hikes during the Iran war. This decision is projected to significantly affect the government’s tax revenue.
Looking ahead, significant dates are on the horizon: the HSBC composite PMI final value for March is due on April 6, followed by the RBI Monetary Policy Meeting on April 8.
