India: A turning point?
A look at the challenges facing India today, the resilience of its economy, and the opportunities that may shape its long-term growth story.
Duration: 6 Mins
Date: Sep 30, 2026
India has faced a difficult period marked by geopolitical uncertainty, higher energy prices, and currency pressures. Yet despite these headwinds, signs of resilience have emerged across the economy and financial markets. Economic growth remains comparatively strong, domestic demand has proven durable, and several structural trends continue to support the country's long-term development.
While risks remain, investors are increasingly weighing whether today's challenges represent a temporary setback rather than a fundamental change to India's broader growth trajectory.
Navigating near-term economic headwinds
The conflict involving Iran and its impact on energy markets has created a meaningful challenge for India. As a major importer of oil, the country remains sensitive to disruptions in global energy supply chains and fluctuations in crude prices. Higher energy costs can affect inflation, corporate profitability, government finances, and household spending.
Although policymakers have benefited from relatively stable inflation, manageable fiscal conditions, and a stronger macroeconomic backdrop than in previous periods of stress, sustained increases in energy prices could place additional pressure on economic growth.
India’s reliance on imported energy means that disruption to Gulf supplies can quickly feed through to inflation, business costs and broader economic conditions (Chart 1).
Chart 1. India’s energy exposure underscores its vulnerability to supply disruption
The path forward is unlikely to be free from volatility. However, India's economy enters this period from a position of relative strength compared with many previous episodes of global uncertainty.
Resilience beneath the uncertainty
Despite these challenges, economic data have remained encouraging. Recent growth figures have highlighted the resilience of domestic activity, supported by household consumption, credit growth, and business investment.
India continues to rank among the fastest growing major economies globally.
India continues to rank among the fastest growing major economies globally. This growth advantage has helped offset concerns about external risks and has provided an important foundation for corporate earnings and investor confidence.
There are also signs that earnings growth may be stabilizing after a period of moderation. At the same time, domestic investors have continued to participate actively in local financial markets, providing an additional source of support during periods when international investors have been more cautious.
Market valuations, while not inexpensive in every area, appear more balanced than earlier in the cycle following periods of market consolidation. Nevertheless, select parts of the market continue to command elevated valuations, underscoring the importance of focusing on fundamentals rather than market enthusiasm alone.
Where opportunities may emerge
Periods of economic uncertainty often create uneven outcomes across sectors and industries. Some businesses are more sensitive to changing commodity prices, interest rates, and global trade conditions, while others benefit from longer-term secular trends that extend beyond the immediate economic cycle.
For investors, the current environment highlights the importance of understanding the underlying drivers of growth rather than focusing exclusively on short-term market movements. Businesses with durable competitive advantages, strong financial positions, and exposure to long-term structural themes may be better positioned to navigate periods of uncertainty.
Several areas of the Indian economy continue to stand out for their longer-term potential:
Energy security and India's long-term transformation
We believe one of India's most important long-term priorities is reducing vulnerability to external energy shocks. Recent geopolitical developments have reinforced the importance of energy security and supply diversification.
Significant investment continues to flow toward energy infrastructure, power networks, renewable generation, and technologies designed to improve efficiency and resilience.1 While traditional energy sources remain critical to economic growth, India is simultaneously expanding its commitment to cleaner and more sustainable solutions.1,2
The scale of this transition creates potential opportunities across numerous industries as the country seeks to meet growing energy demand while improving long-term sustainability.
Healthcare and rising household wealth
Healthcare is another sector supported by powerful structural forces.
As incomes rise and living standards improve, demand for healthcare services, pharmaceuticals, diagnostics, and medical technology is expected to increase. Demographic trends, expanding access to care, and greater health awareness are also contributing to long-term growth prospects.
These developments are helping to create a healthcare ecosystem that is increasingly important to both economic development and household well-being.
The evolving consumer story
India's consumer economy has long been viewed as one of its most compelling growth drivers.
Urbanization, rising incomes, digital adoption, and a growing middle class continue to support demand for products and services across a wide range of categories. While consumer spending can experience periods of weakness during economic slowdowns, the broader trend remains closely linked to India's ongoing economic development.
For many businesses, the expansion of domestic consumption remains a key source of long-term opportunity.
India's role in the AI era
Artificial intelligence (AI) is reshaping industries around the world, and India is no exception. However, India’s relationship with AI may be more complex than that of some of the other Asian markets.
Unlike countries such as Taiwan and Korea, India has a relatively limited presence in semiconductor manufacturing and advanced technology hardware. Nor has it emerged as a leader in developing large-scale AI models in the way that China has. As a result, India may be less directly exposed to some of the areas that have been driving global enthusiasm around AI.
AI presents both opportunities and challenges for India's large technology and IT services sector.
At the same time, AI presents both opportunities and challenges for India's large technology and IT services sector. Advances in automation and code generation have the potential to improve productivity, but they could also alter demand for some traditional outsourcing and software development services. How companies adapt their business models to this changing environment may become an increasingly important differentiator.
Nevertheless, India retains several long-term advantages, including a deep technology talent pool, strong digital infrastructure, and a rapidly expanding digital economy. These strengths could help support innovation and adoption across a wide range of industries, even if the ultimate winners and losers of the AI transition remain far from certain.
Looking beyond today's challenges
Markets often focus on immediate risks, particularly during periods of geopolitical tension and economic uncertainty. Yet history suggests that long-term investment outcomes are frequently shaped by structural trends rather than short-term headlines.
India continues to benefit from favorable demographics, rising domestic consumption, expanding financial participation, infrastructure investment, and ongoing technological development.
India continues to benefit from favorable demographics, rising domestic consumption, expanding financial participation, infrastructure investment, and ongoing technological development. These advantages do not eliminate risk, but they help explain why the country remains an important part of many investors' discussions about long-term growth opportunities.
The coming months will likely provide further insight into how businesses and consumers adapt to current challenges. What remains clear is that India's economic story continues to evolve.
Final thoughts
India stands at an important crossroads. Higher energy costs, geopolitical uncertainty, and market volatility present genuine challenges that cannot be ignored. However, the resilience demonstrated by both the economy and financial markets suggest that investors are beginning to look beyond today's obstacles. The country's long-term investment case continues to rest on a combination of favorable demographics, expanding domestic demand, infrastructure development, rising financial participation, and increasing innovation. While progress is unlikely to follow a straight line, the foundations that have supported India's economic rise remain largely intact. For long-term investors, the current environment serves as a reminder that periods of uncertainty often accompany periods of transformation. The key question may not be whether challenges exist, but whether those challenges are ultimately overshadowed by the structural forces shaping India's future growth story.
Endnotes
1 "Efficient Grid-Interactive Buildings in India." Reports. International Energy Agency, March 2026. 2 "Industry leaders reaffirm commitment to decarbonisation, sustainable growth." India Times, June 2026.
Important information
Past performance is not an indication of future results.
Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed and actual events or results may differ materially.
Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.
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