India: Short-term noise vs. Long-term opportunities

Indian equities have faced a more challenging start to 2026, shaped largely by external factors, including rising energy prices linked to geopolitical tensions and shifting investor focus toward AI-related markets.^1,2 These dynamics have weighed on sentiment and contributed to periods of currency and market volatility. While recent performance has been more muted, longer-term trends provide important context, with Indian equities having delivered consistent relative performance over time (Chart 1).³

This contrast highlights the importance of distinguishing between short-term market pressures and the underlying structural drivers shaping the economy.

Distinguishing short-term pressures from structural trends

India’s reliance on imported energy (Chart 2) has been highlighted by recent geopolitical developments, underscoring sensitivities to global supply dynamics. At the same time, regional investor flows have favored markets more directly linked to AI-related growth.

However, we believe deeper structural trends – including ongoing economic reform, demographic tailwinds, infrastructure investment, and domestic consumption – continue to support the longer-term outlook. To date, the Reserve Bank of India indicates that growth expectations have been revised down modestly from around 0.3% to 6.7%, underscoring that while risks remain, the broader trajectory has not materially shifted (Chart 3).⁴

Periods of market dislocation can alter valuations across sectors, reinforcing the importance of a selective and valuation-aware approach.

Long-term growth themes

Looking beyond near-term dynamics, a set of structural themes continues to underpin how India’s economy is evolving.

Financialization

India’s shift from physical assets toward formal financial instruments remains in its early stages. Penetration across banking, credit, insurance, and capital markets continues to expand, supported by increasing participation from households and businesses.⁵

Digital adoption and infrastructure

Despite limited direct exposure to global AI leaders, India’s digital economy continues to scale. Growth in data consumption, digital payments, and connectivity is supporting demand for broader digital and physical infrastructure, including networks, data storage, and related services.⁵

At the same time, investment in enabling technologies – such as electrification and data infrastructure – reflects preparation for future technological adoption, including AI.⁵

Energy transition

Recent events have reinforced the importance of energy diversification. In our view, investments in transmission networks and renewable integration remains a key area of development as India continues to build capacity across its energy system.

Evolving consumption

As incomes rise, consumption patterns are shifting toward higher-value goods and services. With GDP per capita still below that of more developed markets, the expansion of discretionary spending and formal retail channels may suggest a continued runway for growth.

Taken together, these themes highlight the breadth of India’s structural growth story. While each is distinct, they are also increasingly interconnected, shaping how the economy formalizes, scales, and adapts over time. In combination, they may provide a framework for understanding how long-term development may continue to unfold, even as shorter-term dynamics shift.