India’s Economic Outlook Dims Amid Global Trade Tensions

As global trade tensions escalate, Kotak Institutional Equities, a prominent brokerage firm, has revised its forecast for India’s GDP growth in FY26 down to 6%, a decrease from the previous estimate of 6.5%. This adjustment reflects concerns over a slowing global demand, significantly influenced by the ongoing tariff disputes initiated by the U.S. administration. The Indian economy is poised to feel the impacts of these international disruptions, particularly through drops in exports and corporate earnings.

Impact of the Global Slowdown

Kotak’s analysis indicates that the current tariff war will continue to exert pressure on India’s economic landscape. The firm noted, "While domestic growth factors may help mitigate some external pressures, the call for policy intervention is likely to increase." On the same day, the Reserve Bank of India (RBI) also adjusted its GDP growth forecast for FY26, reducing it from 6.7% to 6.5%.

GDP Growth Projections and Challenges

Kotak has narrowed its GDP growth expectations to a range of 5.8% to 6.2%, assuming that global growth rates dip below 2% in 2025. The anticipated repercussions of this downturn include:

• A sharp decline in merchandise exports, estimated at around 8%.
• A reduction in corporate profits, especially affecting small and medium enterprises (SMEs) that account for 45% of total exports.
• Increased challenges to the investment landscape.

Furthermore, Kotak has adjusted its Current Account Deficit (CAD) estimates, projecting it at 1% of GDP compared to the earlier figure of 0.9%. This revision considers the expected drop in goods exports, a slight decrease in goods imports, and stagnant service surpluses along with remittance flows, which carry inherent risks.

Balance of Payments and Currency Outlook

Kotak has taken a cautious stance on capital flow projections, indicating potential risks that could lead to a Balance of Payments (BOP) deficit of $3.3 billion, a stark contrast to the previously anticipated $10 billion surplus.

Regarding currency projections, the brokerage anticipates the Indian Rupee (INR) will depreciate modestly in FY26, forecasting a range between 84.5 and 88 against the U.S. dollar, with an average around 86.3. They believe that the weakening of the dollar, as the narrative of U.S. economic exceptionalism wanes, coupled with the real interest rate differential between India and the U.S., will lend some support to the INR.

However, uncertainty stemming from tariffs, potential devaluation of the Chinese Yuan, and risks of capital outflow are expected to keep pressure on the INR. Kotak expects the RBI to play a role in managing currency fluctuations to prevent excessive gains.

Conclusion

As the global economic landscape shifts, India must navigate these challenges carefully. Stakeholders are advised to stay informed about market developments and the implications of international trade policies. For further insights on market trends, keep an eye on updates from financial experts and institutions.

For more detailed financial analyses, visit Kotak Securities or explore the latest reports from the Reserve Bank of India.