Axis Bank expects India’s growth to be above trend in 2026-27 (April-Mar) at 7.5%, on the back of structural and regulatory reforms, lower borrowing costs, accelerated capital formation and a cyclical boost from policy easing, Neelkanth Mishra, Chief Economist, Axis Bank and Head – Global Research at Axis Capital said on Tuesday while releasing the outlook for 2026.
“So, we started the year with some headwinds. Now things have started to normalise and as we enter FY27, we think that the monetary policy will become a tailwind,” Mishra said.
The Reserve Bank of India has pegged the real GDP growth for Q1 FY27 at 6.7% and for Q2 at 6.8%. He added that despite above trend growth, inflation will not rise or is unlikely to rise to a level where it necessitates policy tightening. He said while the market expects the Monetary Policy Committee (MPC) to hike the repo rates after 1.5-2 years, they would realise that the slack in the economy is meaningful and that rate hikes are still a lot further away than is currently expected.
Mishra on inflation
He added that the median inflation is a better gauge of underlying price pressures. “This (median inflation) has been stable, near 3% for 18 months and signals persistent slack in the economy. This is why, despite the above-trend growth and a rebound in food prices, we expect FY27 headline inflation to average 4%,” he said. The RBI has projected CPI inflation for Q1and Q2 of the next financial year are projected at 3.9% and 4.0%, respectively. He added that economic slack may take several years to close.
He said that the policy rates have likely bottomed, to aid monetary transmission and boost credit growth, however money supply can rise further, and supply side measures like issuing more treasury-bills and shorter-duration bonds could reduce steepness of the yield curve. “We expect 10-year yields to drift towards 6% in FY27,” he said. Since February, the RBI has slashed the repo rate by 125 basis points to 5.25%.
Mishra on India-US trade deal
On the trade deal he said that the estimates of 40-50 basis points for GDP getting impacted were overblown. “More than the US-India trade deal, we worry about rising cost of capital globally and the unending surge in Chinese exports,” he said. In October, goods exports fell across all major categories excluding-electronics not due to the US tariffs (exports to the US down 8% on year, but up 15% on month with exports still adjusting to the front-loading of prior months) but due to diversion of Chinese exports to non-US markets. “We fear these pressures are likely to intensify going forward,” the report said.