India's economic growth in the April-June quarter exceeded expectations, but a surge in global oil prices tempered stock market enthusiasm. Official data released on Thursday showed real GDP expanded 7.8% year-on-year, surpassing the Reserve Bank of India's (RBI) 7.0% projection. The stronger-than-expected growth underscores the resilience of domestic demand, yet the rally in the Nifty 50 faded as Brent crude hovered near $95 a barrel.
The rupee strengthened 0.54% to 94.46 per dollar, supported by a wave of special foreign-currency inflows totaling $136.4 billion. These inflows, primarily through non-resident deposits and other overseas borrowings, also helped push down bond yields. The 10-year sovereign yield fell 2.5 basis points to 6.9502% by mid-morning. However, broader equity indices struggled, with the Nifty 50 giving up its initial gains by 14:07 IST, reflecting investor caution over the impact of expensive oil on inflation and corporate margins.
Robust GDP Details
According to the Ministry of Statistics, real GDP reached 81.36 trillion rupees in the June quarter, up 7.8% from a year earlier. Nominal GDP grew 10.3% to 88.27 trillion rupees. The growth was broad-based: fixed investment rose 11.9%, household consumption increased 7.1%, manufacturing expanded 9.2%, and the financial, property, and professional services sector grew 12.1%.
The data also revealed upward revisions to previous quarters. January-March growth was revised to 8.6% from 7.8%, and April-June 2025 was revised to 6.9%. Statistics Secretary Saurabh Garg attributed the changes to additional data sources and refined price deflators, which increased from about 180 to over 300. While the revisions paint a stronger growth picture, they also raise questions about the reliability of near-term comparisons.
FX Inflows Provide Cushion
The market's focus on Thursday shifted to the external sector. Banks mobilized $127.23 billion through non-resident deposits, and other overseas borrowing brought total special inflows to $136.38 billion, according to Reuters. This exceeded the upper-end market estimate of $100 billion by 36.4%. Banking system liquidity remained ample at 9.7 trillion rupees.
The inflows helped stabilize the rupee and shortened bond yields. The five-year yield dropped 8 basis points to 6.48%, while the 10-year yield fell only 2.5 basis points, as oil prices limited demand for longer-duration paper. Kunal Sodhani of Shinhan Bank noted that the inflows "materially strengthen" the RBI's ability to manage currency volatility.
Equity Leadership and Sectoral Moves
Equity gains were concentrated in banking stocks, which rose about 1% in early trade, while the broader benchmarks faded. Nine of 16 major sectors advanced at 10:21 IST, but the Nifty 50 remained near three-session losses of 1%. The divergence highlights the market's mixed reaction to strong growth and rising energy costs.
The persistence of oil prices near $95 is a key risk. It can widen India's trade deficit and push inflation higher, potentially forcing the RBI to reconsider its monetary policy stance. While the FX inflows provide a buffer, they cannot fully offset the drag from higher import bills.
Analysts are watching whether the inflows will continue and whether GDP revisions will affect earnings estimates. The stronger growth path supports corporate profits, but investors need to see confirmation in nominal sales and cash flows. Meanwhile, the RBI's record FX reserves of $729.3 billion offer additional comfort against external shocks.
Looking ahead, a renewed spike in oil prices could weaken the rupee and steepen the yield curve, while faster global rate hikes would compound these pressures. The market's next test will be whether the growth momentum can be sustained without stoking inflation, and whether the FX buffer remains a reliable shield.
