Jefferies expects India’s GDP to grow by 6.5-7% this fiscal year, driven by a sharp rise in bank lending and consumer demand. The brokerage forecasts corporate earnings will climb 17% by fiscal 2027. Investors should watch for inflation risks linked to high crude oil prices and potential interest rate hikes.
Jefferies has released a positive outlook for the Indian economy, projecting real GDP growth of 6.5% to 7% for the current fiscal year. The brokerage report suggests that corporate earnings are likely to rise by 17% by fiscal 2027, driven by a revival in private sector capital spending. This growth projection comes as several key economic indicators show resilience, despite global challenges.
The report highlights that bank credit growth is a major engine for this optimism. As of August, total bank credit grew by 19.1% compared to the previous year, with corporate lending seeing a sharper increase of 21.6% in July. Specifically, loans to micro, small, and medium enterprises grew by 24.9%. This lending data is often interpreted as a sign that businesses are borrowing to expand operations and invest in new projects.
Consumer Demand and Real Estate
Domestic demand remains a key support factor. GST collections increased by 14.8% in August, suggesting steady activity in goods and services. Power demand has also picked up, rising 9.4% between April and August, which is an improvement over the first quarter. Additionally, the residential real estate sector has shown recovery, with sales across the top seven Indian cities rising 7% in the first seven months of 2026, marking a turnaround from the previous year's performance.
Energy Risks and Interest Rates
While the growth outlook is positive, the report identifies energy prices as a risk. With Brent crude oil trading near $106 per barrel, elevated energy costs remain a threat to both inflation levels and the country's import bill. Higher crude prices can squeeze profit margins for companies in sectors like aviation, paints, and auto, and impact the overall inflation rate.
Because of these inflationary pressures, the brokerage anticipates that the Reserve Bank of India may increase the repo rate by 50 basis points by the end of 2026. This would move the repo rate up from its current 5.25% level. For investors, rising interest rates generally increase borrowing costs for companies and individuals, which can slow down credit growth over time. The balance between maintaining economic momentum and controlling inflation will be the primary factor for the central bank's decisions. Investors should monitor oil price movements and future Reserve Bank of India policy updates to understand how these factors might impact corporate profitability and consumer spending.