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India’s Growth Outlook Moderates Amid Geopolitical Headwinds, But Market Signals Opportunity Moody’s recent downward revision of India’s FY27 GDP growth forecast to 6% from 6.8% reflects rising concerns around geopolitical instability in West Asia. This adjustment comes despite India demonstrating strong economic momentum, with real GDP growth at 7.5% in CY2025, up from 7.2% in 2024—making it the fastest-growing major economy among G20 nations, largely supported by a manufacturing-led recovery. The ongoing conflict in West Asia poses meaningful risks to India’s macroeconomic stability due to its significant dependence on the region for energy imports. Approximately 55% of India’s crude oil and over 90% of LPG supplies originate from this region, making the economy vulnerable to supply disruptions. Elevated prices of oil, gas, and fertilisers are expected to: 1. Increase input costs across sectors 2. Push up transportation and logistics expenses 3. Trigger second-order effects on food inflation due to fertiliser dependency Moody’s projects inflation at 4.8% for FY27, with risks skewed to the upside. EY estimates that prolonged geopolitical tensions could reduce GDP growth by ~1% and increase inflation by ~1.5% over baseline projections. ICRA expects growth to moderate to around 6.5% in FY27, citing energy price pressures and supply concerns. These projections collectively indicate a period of moderated, yet stable, economic expansion. Despite the evolving macroeconomic risks, equity markets appear to have already absorbed a significant portion of these concerns. Midcap Index: Down ~14% from 52-week highs; ~40% of stocks corrected by over 30% Smallcap Index: Down ~22%; ~40% of stocks declined by more than 40% Large Caps (Nifty): Currently trading below their 10-year median price-to-earnings (PE) multiples This broad-based correction suggests that valuations have normalized considerably, especially after the elevated levels seen in the previous two years. From an investment standpoint, the correction in equity markets appears to have partially de-risked valuations, creating a favorable setup for long-term investors.