India’s Growth at a Crossroads: SBI Lowers FY26 GDP Forecast

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22 Aug, 2025

India’s Growth at a Crossroads: SBI Lowers FY26 GDP Forecast

Context & Highlights

SBI Report: On August 21, 2025, the State Bank of India SBI slashed its GDP estimate for FY26 to 6.3%, below the RBI's projection of 6.5% , .

Quarterly Outlook: Q1 GDP is robust—estimated at 6.8–7.0%—but growth is expected to taper in later quarters, with Q2 at about 6.5%, Q3 lower, and Q4 potentially dropping to 6.1%.

Underlying Risk: A key concern driving the downgrade is muted private capital expenditure capex. SBI’s survey among 2,170 firms across sectors agri, manufacturing, IT shows lower intended capex for FY26 versus FY25—and U.S. tariffs may further dampen investment outlook.

Policy and External Landscape

RBI’s Position: Despite global and domestic headwinds, the RBI has held firm on its 6.5% GDP forecast for FY26 and kept the repo rate unchanged at 5.5% while cutting its inflation estimate from 3.7% to 3.1% , .

Global Trade Pressures: The U.S. has imposed tariffs, and trade tensions remain a concern. However, agencies like S&P remain optimistic, pointing out that India isn’t heavily reliant on exports—the U.S. accounts for only ~2% of GDP—and that tariffs are unlikely to derail long-term growth or affect its sovereign credit outlook . Contrastingly, Goldman Sachs recently trimmed its calendar-year growth predictions to 6.5% for 2025, from earlier projections, citing these trade frictions .

Market Impact: What It Means for India

Equities: Lower-than-expected GDP growth, particularly from subdued private investment, may weigh on industrial, infrastructure, and capital goods sectors. Public capex may offer some cushioning.

Crediting Sentiment: Slower growth—if private sector remains cautious—could dampen credit off-take, especially for corporate and SME segments.

Monetary Policy: With inflation forecasts easing, RBI may maintain its neutral stance, but growth concerns could prompt additional easing later if needed.

Investor Confidence: Global funds may remain watchful, especially in view of trade tensions. Yet resilient Q1 performance and strong public investment offer a silver lining.

Fiscal Policy: The government may need to step in stronger via public investment or targeted stimulus to offset faltering private demand.

Summary

The SBI’s downward revision for FY26 GDP to 6.3% from RBI’s 6.5% flags caution. While Q1 data shows strength, weak private investment and external pressures loom large. The RBI’s unchanged forecast and lower inflation projection provide some buffer, but markets are likely to keep a close watch on Q2 and policy actions ahead.
By Nehal Taparia

This content is for educational and knowledge purposes only and should not be considered as investment or Trading advice. Please consult a certified financial advisor before making any investment or Trading decisions.

Our Recent FAQS

Frequently Asked Question &
Answers Here

Q1 : What did SBI project for FY26 GDP growth?

SBI projects 6.3% GDP growth—below RBI’s 6.5% and IMF’s ~6.4%—highlighting weaker momentum in latter quarters .

Q2 : Why the downward revision?

The downgrade stems from lowered private capex intentions, confirmed by a firm-level survey, and anticipated negative impacts from U.S. tariffs ,

Q3 : How does this compare to current performance?

The economy appears strong in Q1 with 6.8–7.0% growth, but momentum is expected to ease—Q4 could dip to 6.1%, .

Q4: Is the RBI adjusting its forecast?

No—RBI still maintains a 6.5% growth forecast for FY26, unchanged despite SBI’s revision, and has held key interest rates steady ,

Q5 : Are trade tensions a big threat?

Trade tensions are a factor, but S&P remains bullish, calling India less vulnerable due to low trade exposure; Goldman Sachs, however, has trimmed its growth outlook slightly .

Q6 : What about inflation?

RBI lowered its inflation forecast to 3.1%, giving some comfort to rate-sensitive markets .

Q7 : Implications for equity markets?

Sectors reliant on private capex e.g., infrastructure, industrials may come under pressure. However, ongoing public capex and resilient services demand offer offsets.

Q8 : Policy response for the coming months?

RBI may hold steady given soft inflation, but could consider easing if the slowdown persists. The government might need to back growth through fiscal measures.

Q9 : What’s the long-term outlook?

Amid global uncertainties, sustaining public investment, reviving private capex, and managing trade tensions are key to achieving India’s growth ambition—especially the 8% target debated by Finance Ministry analysts