Assessing India's Economic Momentum Amid Global Inflation and Policy Shifts

India's economy has emerged as a standout performer in a global landscape marked by persistent inflation and cautious central bank policies. As of Q2 2025, the country's GDP growth accelerated to 7.4% year-over-year, driven by robust private consumption and investment. This outpaces the 6.5% full-year growth projection and positions India as a rare bright spot in a world grappling with uneven disinflation and geopolitical uncertainties. For investors, the contrast between India's domestic momentum and the more constrained global environment raises a critical question: Are Indian equities now a more compelling bet than their global counterparts?

India's Domestic Momentum: A Tale of Resilience

India's economic rebound in 2025 has been fueled by a shift from government-led growth to private-sector-driven expansion. Private final consumption expenditure grew by 7.2% annually, while gross fixed capital formation surged 9.4% in Q4 2024–25, signaling a broadening base of economic activity. Easing inflation—now at 2.1%, the lowest since 2019—has allowed the Reserve Bank of India (RBI) to cut rates by 100 basis points since February 2025, boosting credit availability and consumer spending.

The retail sector, a key barometer of domestic demand, has mirrored this strength. Organized retail is projected to reach $230 billion by 2030, with e-commerce expected to grow at a 17% CAGR. Meanwhile, corporate earnings from sectors like IT and manufacturing have shown resilience. Tata Consultancy Services (TCS), India's largest IT firm, reported a 6.4% revenue growth in Q2 2025, driven by AI and cloud adoption in energy and manufacturing. Its India segment saw a staggering 95.2% growth, reflecting the domestic market's untapped potential.

Global Inflation and Policy Divergence

In contrast, global inflation remains stubbornly elevated in advanced economies. The U.S. Federal Reserve faces pressure to maintain restrictive rates as inflation lingers above 3%, while the European Central Bank (ECB) has only recently begun easing, cutting rates by 25 bps in June 2025. The ECB's cautious approach reflects a broader trend: central banks are prioritizing inflation control over growth, even as trade tensions and supply chain disruptions persist.

This divergence creates a stark contrast. While India's disinflationary environment supports rate cuts and accommodative policies, global markets face a “higher for longer” rate scenario. For example, the S&P 500 and FTSE 100 have underperformed the Nifty 50 in 2025, with valuations stretched in sectors like tech and energy.

Corporate Earnings: India's Edge in a Fragmented World

Indian corporates are capitalizing on structural tailwinds. The IT sector, a global export engine, is leveraging AI and cybersecurity to secure long-term contracts. TCS's 24.1% operating margin in Q2 2025 highlights the sector's profitability, outpacing global peers like IBM and Accenture. Meanwhile, manufacturing firms are benefiting from India's “Make in India” push, with gross fixed capital formation accelerating to 9.4% in Q4 2024–25.

Retail and e-commerce firms are also outperforming. The Nifty Consumer Durables and Fast-Moving Consumer Goods (FMCG) indices have gained 12% and 8%, respectively, in 2025, driven by rising disposable incomes and digital adoption. This contrasts with Western markets, where retail sales growth has stagnated amid high borrowing costs.

Risks and Considerations

While India's fundamentals are strong, risks remain. Global trade tensions, particularly U.S. tariffs on Indian goods, could dampen export growth. Additionally, urban consumption remains weak due to depleted savings and slow wage growth. However, the RBI's accommodative stance and the government's focus on infrastructure and digital infrastructure (e.g., UPI's $221.6 billion transaction value in January 2024) provide a buffer.

Investment Implications

For investors, India's combination of strong domestic demand, favorable monetary policy, and resilient corporate earnings makes its equities more attractive than global counterparts in 2025. Sectors like IT, retail, and manufacturing offer exposure to India's growth story, while defensive plays in FMCG and utilities provide stability.

Actionable Advice: Overweight Indian equities, particularly in sectors aligned with domestic consumption and technology. Monitor global trade developments but prioritize India's structural growth drivers. For global investors, Indian ETFs and sector-specific funds offer a diversified entry point.

In conclusion, India's economic momentum—anchored by disinflation, rate cuts, and corporate resilience—positions it as a standout in a fragmented global economy. While risks persist, the country's unique combination of policy support and market dynamics makes it a compelling destination for capital in August 2025.