India: Improved macro outlook after the US-Iran deal

Research evidence excerpt

India: Improved macro outlook after the US-Iran deal

Goldman Sachs India

Growth: Raising our CY26 growth forecast by 0.3pp to 6.8% yoy

India’s real GDP growth has held up better than our earlier expectations, with Q1 CY26

real GDP growth coming in at 7.8% yoy, around 50bp above our forecast, driven by

stronger investment and services activity. On the expenditure side, investment remained

resilient despite supply-side disruptions, with gross fixed capital formation rising to a

six-quarter high of 10.8% yoy in Q1 CY26 supported by robust automobile production

and stronger investment goods imports.

Consumption growth likely to moderate in Q2 and Q3: Going forward, we expect

consumption growth to moderate in Q2 and Q3 on earlier pump fuel price increases. We

have also seen deterioration in the RBI’s urban and rural consumer confidence surveys

(90.7 in May vs. 93.2 in April for the urban confidence index). However, the recent

decline in oil prices reduces the likelihood of further fuel price increases, implying no

further incremental drag on consumption growth from Q4.

Services and manufacturing activity are tracking strong in Q2: From the production

side, services GVA remained robust in Q1 CY26 at 9.9% yoy, led by trade, hotels and

transportation, supported by resilient three-wheeler sales and robust sales growth of

non-IT services firms (+31% yoy in Q1 CY26) as per data from the RBI, while air

passenger traffic growth softened. Manufacturing growth moderated in Q1, likely

reflecting weaker chemicals output, and slower metals production growth, partly offset

by stronger automobile production. High frequency indicators in April and May show

resilience in both services and manufacturing activity underpinned by strong