India's economy is on track for 7% growth this fiscal year, but MD Nilesh Shah warns that high oil prices and poor rainfall could slow momentum. The market is also dealing with record foreign investor outflows and a heavy supply of new shares.
India is projected to grow by 7% this fiscal year, maintaining solid economic momentum despite growing external and domestic pressures. Nilesh Shah, Managing Director of Kotak Mahindra Asset Management Company, highlighted that while current indicators remain strong, the path to sustaining this growth into the next year is becoming more complex.
The primary concerns are linked to energy and weather. Crude oil prices, which have recently faced pressure from geopolitical tensions, are a major risk to the economy. Higher energy costs directly increase the nation's import bill, which can weaken the Indian rupee and fuel inflation. When inflation remains sticky, the Reserve Bank of India may have to maintain higher interest rates, which increases borrowing costs for businesses and puts pressure on profit margins. Additionally, a 12% monsoon rainfall deficit adds to the uncertainty, as it threatens agricultural output and could contribute to higher food prices.
The equity market is currently reflecting these macroeconomic uncertainties. In 2026, foreign investors have sold a record amount of Indian equities, with outflows exceeding ₹2.6 trillion. This selling pressure is driven by global capital shifting toward other markets like the US, South Korea, and Taiwan, which have attracted significant interest due to the global rally in artificial intelligence stocks.
Simultaneously, the domestic market has faced a continuous supply of new shares through initial public offerings, qualified institutional placements, and offer-for-sale structures. Over the last three years, corporate India has raised over $50 billion in equity, creating a supply glut that absorbs significant liquidity. This has created a split in sentiment, where small and mid-cap stocks attract aggressive retail interest, while many large-cap stocks are overlooked by institutional participants.
For investors, the current environment emphasizes the need to be selective. Instead of following broad market momentum, focusing on companies with proven earnings quality is essential to navigate the current volatility. Key monitorables for investors include Brent crude oil prices and inflation data, as these will heavily influence future interest rate decisions by the central bank. The ability of companies to protect profit margins despite rising input costs and the trend of future foreign investment flows will remain important factors for market participants to track.