PL Capital, one of India’s most trusted financial services organizations, in its latest India Strategy Report titled “Holding Steady in Global Headwinds”, cited that despite global headwinds such as heightened U.S. tariffs, H-1B visa fee hikes, and geopolitical volatility, India’s economy and equity markets continue to demonstrate remarkable resilience.

The report further highlights that with normal monsoons, a 100-basis point cut in interest rates, rationalisation of GST rates, and tax reductions announced in the FY26 Budget, the conditions are now conducive for a strong revival in consumption. Implementation of GST 2.0 is expected to further offset the impact of global tariffs, while the upcoming 8th Pay Commission in 2026 is likely to provide an additional boost to household spending, helping sustain economic momentum through FY27. It believes that the conditions are ripe for demand revival in 2H26 noting that consumer demand has seen a strong rebound from 22nd Sept, which is visible across auto and discretionary segments.

Though PL Capital expect 2QFY26 numbers to be volatile due to GST transition and trade de-stocking in many industries. It expects strong demand trends in consumer staples, durables, apparel, footwear etc. in coming quarters. Auto has seen a big reset in GST rates and start of festival season has been strong, we expect strong growth in demand to sustain for both PV and 2W.

It notes that GOI has unveiled strong commitment to invest behind Defense, Semiconductors, Ports, Dams, Nuclear Power etc. However, the incremental Govt push is likely to be limited as Govt capex is more than 3x since FY21. First five months have seen 43% higher capex outlay by GOI, and rest of the year will be flattish unless there is an incremental allocation by GOI. Revival of demand will likely increase private sector capacity utilization and increase private sector capex, which has been waiting on the sidelines.      

India’s current account: A structural surplus ex gold import

India’s current account dynamics have long been perceived through the lens of a persistent deficit, reflecting the economy’s high import dependence on commodities like oil and gold. However, gold imports, unlike typical consumption goods, largely represent an asset or investment class not only within household savings portfolios but also central banks. 

While aggregate demand of Gold has not crossed the peak of 2010/2011 (1000 tons), the buying by RBI and investment demand has been rising steadily. RBI did not add gold to its reserves between 2010 to 2018. However, it has been adding gold with addition of 375 tons taking total reserves to 880 tons by March 25.

GDP shows strength with 7.8% growth in Q1 FY26

India’s Q1 FY26 GDP growth reaffirmed the economy’s resilience, surpassing expectations at 7.8% year-on-year, compared with 6.5% in Q1 FY25 and 7.4% in 4QFY25. The acceleration was led by strong momentum in manufacturing and services alongside steady consumption demand and supportive policy conditions. In nominal terms, GDP grew by 8.8%, moderating from 9.7% a year earlier, reflecting easing price pressures and a softer deflator. On the expenditure side, government consumption and investment activity continued to expand on the back of record public capex.

High-frequency indicators ranging from GST collections and e-way bills to services exports and credit growth corroborate the underlying strength in domestic demand. The RBI has revised its FY26 growth forecast to 6.8%, with GDP expected to grow by 7% in Q2. Although headline growth remains robust, external risks persist, particularly from tariff-related uncertainties and a volatile global trade environment.

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GCC growth may cushion H-1B visa Policy setback

PL Capital notes that India’s services exports are entering a new growth phase, led by digitally delivered, high-value knowledge services. By 2030, the country is projected to host around 2,200 Global Capability Centers (GCCs) generating over USD 100 billion in revenue, with total services exports expected to reach USD 500 billion. The talent landscape is evolving rapidly, with rising demand in areas such as AI, cybersecurity, GenAI product engineering, and sustainability analytics — further strengthening India’s position as a global innovation hub.

India’s GCCs generated USD 64.6 billion in revenue in FY24, up from USD 46 billion in FY23 — a strong 40% growth despite global macroeconomic headwinds. The country’s technology landscape is undergoing a significant transformation, with GCCs expanding at a much faster pace than traditional IT firms. In FY2025, net job additions by traditional IT companies stood at a modest 11,000, whereas GCCs added more than 100,000 employees during the same period.

Holding steady in global headwinds

Indian markets have been flattish from past three months, despite headwinds like rising incidence of US penal and non-penal tariffs and Rs850bn selling by FII. Normal monsoons and expected pick-up in domestic demand have been key catalysts for markets to absorb the current negative news flow. 

PL Capital notes that as geopolitical situation remains fragile, and India is absorbing the impact of penal tariffs and hefty increase in fee for H-1B visas. However, rising GCC exports will curtail any significant negative impact on overall economy. PL Capital believes that current wave of global protectionism is negative for trade and will impact global growth in future. Although there are expectations around concluding a trade deal with the US in a few months, the scenario looks increasingly tough given sustained differences on agriculture, dairy, GM crops and labor-intensive industries. First five months have seen 43% higher capex outlay by GOI, and rest of the year will be flattish unless there is an incremental allocation by GOI. Revival of demand will likely increase private sector capacity utilization and private capex, which has been waiting on the sidelines. 

On market front, PL Capital values the NIFTY at its 15-year average P/E multiple of 19.2x, based on a Sept’27 EPS estimate of ₹1,499, arriving at a 12-month target of 28,781 (previously 27,609).In bull case, PL Capital assigns a higher multiple of 20x, implying a target of 30,220 (earlier 28,990). In the bear case, assuming NIFTY trades at a 10% discount to its long-period average, it derive a target of 25,903 (earlier 24,848). 

PL Capital believes that domestic oriented sectors such as banks, NBFC, auto, retail, consumer staples, defense, metals and select durables are well placed to outperform.