“India is in this situation where growth has surprised on the upside. So, the first half of the year growth has approximately been around 8% and inflation has been pretty low. Food inflation has come off quite a lot and also core inflation which is ex food and fuel has been low for now a couple of years.”
According to Nandi, the headwinds that weighed on the economy through 2024 and 2025 are now tapering off. With trade disruptions easing, wage growth expected to improve, and capital expenditure staying firm — particularly from states — the ingredients for sustained expansion appear to be in place.
He also underscored the policy environment. “Let us not forget that 2025 has been a year where there has been a lot of policy easing on the regulatory side, from RBI‘s perspective, even the budget has basically been pro-growth as opposed to pro-fiscal consolidation. So, the conditions are pretty good for growth.”
On inflation, the outlook remains constructive, provided monsoons behave. “We do not see major inflationary risks if we have decent monsoons and given that the core drivers behind lower underlying inflation still remain pretty much in place.”
Nomura expects GDP growth at 7.5% in FY26 and 7.1% in FY27, with inflation hovering around 4%. “So, yes, pretty much goldilocks continued.”
Bridging the FY26 Gap
When asked about the divergence between projections and official estimates, Nandi clarified, “So, our FY26 projection is 7.5%.”
He pointed to a combination of factors driving momentum in the current quarter. “The GST cut plus festive demand quarter means that a lot of consumption-related indicators have picked up in the last quarter. We also have urban wage growth picking up which we see in company results. Companies themselves have registered an increase in profit growth.”
Capital expenditure, particularly at the state level, remains supportive. A technical factor is also at play. “One of the reasons why real growth has been high in the last two quarters has been that the GDP deflator has also been low… GDP deflator is expected to fall further in this quarter.”
Taken together, these dynamics lead to an expectation of 7.7% GDP growth in Q3, compared with 8.2% in the previous quarter.
The Rate Cut Debate
With inflation cooling and growth resilient, the Monetary Policy Committee faces a delicate balancing act.
Nandi’s baseline view is clear: “Our baseline view is no more cuts.”
Yet he acknowledges the counterargument. “If you are achieving seven-percent-ish growth with low inflation, then the question is should you achieve a bit more by cutting rates further.”
He believes the Reserve Bank of India has room to act if needed. “RBI certainly has the bullets for a rate cut. There is nothing that should constrain the RBI at this point. The question is the application.”
For now, however, Nomura has stepped back from its earlier expectation of one more 25 basis point cut. “We earlier had one more 25 basis point cut but just given the way Indian macro situation is shifting, we have taken away that cut. So, currently we are at policy hold but… there is a risk of another cut.”
Rupee: Stability or More Volatility?
The rupee has seen bouts of volatility, though recent weeks have brought some calm. Nandi remains cautious.
“Our house forecast is rupee at around 90 level by the end of the calendar year.”
Trade tensions have eased from earlier extremes, but capital flows will be key. “If you have net FDI flows starting to recover and if you have the foreign portfolio money coming back, then probably you would have some support to the rupee.”
However, even inflows may not translate into full appreciation. “If foreign flows do come in and there is an appreciating pressure on the rupee, the RBI could say, hey, wait a minute, this is a great time for me to build up my reserves. So, you may not see that entire appreciation reflect in the market price.”
For now, he describes conditions as incrementally improving — though volatility remains part of the story.
Oil, Geopolitics and Inflation Risks
With geopolitical tensions simmering and oil prices volatile, the risk to inflation is under scrutiny. Nandi offered a nuanced view.
“The way oil price hits the economy is higher crude oil prices lead to higher petrol and diesel prices which then impacts inflation to the extent of the weight of petrol and diesel.”
But transmission may not be immediate. “Petrol, diesel prices in India have been constant for years now… If my pump price remains constant, then it does not really matter where crude oil price is up or down.”
Beyond oil, structural factors may be keeping inflation anchored. “We have a widening trade deficit with China, so a lot of cheap Chinese imports are coming into the market. There is also the case where you have digitisation, you have investment in infrastructure, so you have supply-side interventions also coming from the government.”
While base effects could cause temporary fluctuations, the broader trend appears stable. “It seems for now that inflation is broadly under control… as of now underlying inflation seems anchored at around 4%.”
In sum, India’s macro narrative remains one of resilience — strong growth, manageable inflation, and policy flexibility. Whether this “goldilocks” balance sustains over the next year will hinge on monsoons, global flows, and the fine calibration of monetary policy.
