S&P Lowers India’s FY26 GDP Growth Forecast to 6.3%

Key Highlights:

Revised Growth Estimates:

• FY26 GDP forecast lowered to 6.3% from 6.5% by S&P Global Ratings.
• FY27 GDP forecast also cut by 30 basis points to 6.5%.

Reason for Downgrade:

• A “seismic and uncertain shift” in U.S. trade policy is causing market volatility and affecting global confidence.
• Increased U.S. tariffs, anticipated retaliatory actions by trade partners, and market turbulence are cited as major downside risks.

Impact on Indian Markets

• Foreign Portfolio Investors (FPIs) have offloaded record volumes of Indian government bonds, driven by:
  • Narrowing yield spread between Indian and U.S. bonds.
  • Increased global risk aversion amid uncertainty in trade and policy.

Implications

• Lower growth may impact fiscal and monetary policy assumptions for FY26–FY27.
• Bond market outflows suggest weaker investor sentiment, especially if yield differentials continue to shrink.
• The situation underscores India’s vulnerability to global macroeconomic shocks, despite domestic growth momentum.