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India’s 2QFY26 GDP surged 8.2% YoY, beating consensus by 0.8pp, driven by robust manufacturing (9.1%) and services (9.2%). Manufacturing gains reflect base effects, deflator quirks, and festive stockpiling amid GST reforms. Private consumption rose 7.9%, outpacing overall consumption (6.5%), while fixed investments grew 7.3%. Unlike in 1Q, several high-frequency indicators—auto sales, durables output, and personal credit—also signaled improving demand. The end to growth downgrades we anticipated in Feb-2025 has now transitioned to strong growth upgrades.
2Q GDP beats consensus est.; methodological challenges less important vs. 1Q
India’s 2QFY26 GDP grew 8.2% YoY, 0.8pp above consensus. The 50bp improvement in GVA growth vs. 1QFY26 (1Q at 7.6% YoY) is primarily due manufacturing (9.1% YoY) doing better. Manufacturing growth acceleration in the last two quarters is due to base effects and deflator measurement issues. Stockpiling for the festive season and due to GST reforms likely contributed as well. Services grew at a healthy 9.2% YoY, though the real growth may be overstated due to the use of an inappropriate deflator. Agri growth slowed slightly vs. 1Q and may register slower growth in 2H.
Consumption growth leads investment growth; Pvt consumption up 7.9% YoY
Overall consumption grew at 6.5% while gross capital formation grew by 5.1% and unexplained expenditures (discrepancies) were ~3% of GDP. Weak govt. social spending in 2Q accounted for contraction in government consumption while private consumption grew 7.9%. Gross capital formation was up 5.1% despite a healthy 7.3% fixed investments growth. This is mostly on account of 22% drop in valuables. In 1Q, there was a visible disconnect between aggregates and parallel proxies. In 2Q, we see a marked improvement: growth in motor car registrations was 0.9pp higher vs. 1Q; 2W sales were up 7.4% YoY in 2Q vs. a decline of 6.2% in 1Q; consumer durables production was up 7% in Sep vs. 2.6% in Jun-25; outstanding personal credit was up 11.8% vs. 11.5%.
We upgrade our above consensus FY26 growth forecast to 7.5% vs. 7.2% earlier
The end to growth downgrades we anticipated in Feb-2025 has now transitioned to strong growth upgrades. Slower pace of fiscal consolidation in FY26, GST reforms, and macroprudential and monetary easing should support growth. While a continuation of 50% tariffs on exports to the US is an overhang, we do not expect it to last long; at ‘normal’ tariffs, the impact would be insignificant. India’s GDP base year revision is set to be launched on 27th February 2026, with restatement of past growth rates watched for.
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