India August 2026 Market Commentary
Markets are trading circumspectly on heightened anxiety over the spike in crude oil prices with the escalation of hostilities in the Persian Gulf, and over US Treasury yields breaking higher following Warsh’s hawkish Jackson Hole pivot.
In contrast, the June quarter results amplified our confidence in the capex and the corporate earnings cycle having inflected positively, in restored macro and external account stability, in the high-frequency data we track validating a sound, sustainable growth trajectory, and in valuations that would appear to be underestimating fundamental earnings resilience and the sustained conversion of idiosyncratic revenue opportunity into earnings and free cash flow.
We would make the case that India’s economic and earnings resilience is firmly underpinned by domestic reforms, a resurgent domestic capex cycle, strong credit demand, industrialization, and discretionary consumption.
We would also make the case for a confluence of tepid expectations and positioning and attractive valuations, setting the market up for a re-rating as conviction builds in the structural revenue opportunity in Indian equities and improving visibility on revenue conversion into earnings and free cash flow growth.
Encouraged by the high-frequency economic indicators we track, and the sustained domestic bid for domestic equities, we are well-invested in domestic industrials, power grid infrastructure, private sector financials, energy security, discretionary consumption, and pharmaceuticals.
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A Few Thoughts on the Headlines:
Interest Rates. Warsh has put rate hikes back on the table. The orderly move higher we have seen thus far reflects ‘normalization’ rather than ‘panic,’ with 10-year Treasury yields still tracking below the ‘normal’ in the four decades preceding the 2008/2009 Global Financial Crisis. In our view, the primary risk is not the absolute level of rates, which markets will digest if measured and calibrated, but a panic ‘re-set,’ where a sharp spike triggers ‘risk-off’ across all risk assets.
There is no viable off-ramp in the Middle East, and geopolitics compounds it. The US and Iran (and their proxies) have resumed missile and drone strikes targeting energy, civil, and military infrastructure across the region. Crude oil, LNG, and coal prices continue to trend higher in response to the supply constraints and strategic storage reserves sitting below normal. And on top of that, we have the US midterms shaping rhetoric and near-term policy bravado, the BRICS summit in New Delhi where Xi, Putin, and Modi are expected to present a united front, a high-stakes Trump-Xi summit, and the uncomfortable tail risks tied to election outcomes in Germany, France, Brazil, and Israel looming into year-end. There’s a lot on the table.
Resilience Confirmed. India’s April–June quarter’s GDP rose +7.8% y-o-y, despite the drag from the war in the Middle East weighing on the rupee and the current/fiscal accounts. Growth is anchored to domestic capex, services, production, and consumption, and the high-frequency data we track would corroborate the print. The validation is in the high frequency indicators we track: Goods and Services Tax (GST) collections, a real-time read on the underlying economy, clocked in at US$62.7bn for the quarter (+12.4% y-o-y, +6.8% q-o-q); retail vehicle registrations totaled 6.42m units (+10.2% y-o-y, +3.8% q-o-q) while gross fixed capital formation advanced +11.9% y-o-y (+4.2% q-o-q), and composite PMI averaged 60.9.
Earnings Breadth is the more important story. The June quarter delivered a decisive upside surprise, confirming both the breadth of the opportunity outside the megacaps and a consistency and amplitude of delivery at odds with the de-rating the market has been subjected to. Earnings for the Nifty500 posted a +18% y-o-y run-rate, a ten-quarter high, with revenues tracking at +11% y-o-y on the back of strong results from the financials, industrials, real estate and consumer discretionary sectors, and particularly strong cash conversion efficiency in the mid-cap industrials and consumer stocks. We are comfortable modeling earnings growth compounding ~15% annually over the next 3 years, with a headline market multiple tracking at 18x one-year forward earnings.
The Reserve Bank’s Dollar Deposit/Swap Program
India’s energy complex (crude oil, gas, fertilizers) imports account for ~5% of GDP. With the rupee (and FX reserves) under duress after the breakout of the war in the Middle East and the spike in energy prices, the RBI reached for its 2013 ‘Taper Tantrum’ playbook, sponsoring a dollar swap facility to boost reserves by mobilizing 3–5-year dollar deposits from non-resident Indians, and encouraging Indian corporations to raise external commercial borrowings (ECB).
In 12 weeks, the swapped dollar deposits and the ECB program brought in $136.4bn (4x the $34bn raised in 2013). The RBI closed the deposit window a month early (the ECB facility remains open through year-end), with reserves at an all-time high (~$745bn) and the rupee stabilizing at ~Rs95/US$.
The caveats.
- The ‘borrowed’ dollars (as opposed to export earnings) are matched against a growing RBI forward book; the headline figures therefore overstate the net reserves buffer.
- The swap facilities’ 3-5-year maturities concentrate redemptions in a relatively narrow window in 2029-2031, a problem for another day.
- Core systemic liquidity is likely to exceed US$100bn, which might force the RBI to sterilize excess liquidity via a higher bank cash reserve ratio and/or limit RBI flexibility to transfer surplus reserves to fund fiscal stimulus.
The positives.
- A credible currency floor is now in place, already visible in exporters repatriating proceeds and a nascent revival in FII equity and debt flows.
- A deposit-constrained banking system now has fresh CRR-and-SLR-exempt funding to sustain credit growth (at ~5% of system deposits, the dollar inflows are ‘supportive’ rather than ‘transformative’).
- The swap hedges principal at par, and since funding costs are known, we estimate NIM dilution of no more than 3bp–10bp, depending on the bank.
From Land Grab to Cash Flow
India’s listed consumer-facing platforms (retailers, quick commerce, delivery apps, marketplaces, fintechs, etc.) have crossed a structural threshold, moving from ‘market share at all costs’ to ‘monetization,’ converting the revenue opportunity into earnings and free cash flow.
We see three specific layers of opportunity: (i) transaction utilities (quick commerce, food delivery, marketplaces) earning a spread on ‘convenience,’ where profitability is driven by scale and last-mile optimization; (ii) backward-integrated retailers investing for sustained gross margin, mix, and scale uplift; and (iii) financial intermediaries, where the moat is regulatory/license-driven, and ‘trust,’ convenience, and repeat transactions drive scale economics and margin accretion.
The growth drivers are in place: the recovery in urban discretionary consumption and the increase in recurring (membership, subscription, and prescription) revenues.
Profitability is inflecting positively for the cohort, with more rational price competition allowing for scale, recurring revenues, operating leverage, and working capital management to drive margin uplift and balance sheet repair without sacrificing the embedded revenue opportunity.
The risks we continue to evaluate include stretched expectations/valuations that leave little room for execution missteps, regulatory intervention (gig-labor classification, capped commissions, trading and leverage limits on capital markets proxies) negatively impacting margins, competitors reverting to irrational pricing in the quest for share, and liquidity overhang from venture/private equity investors ‘looking for an exit.’
On balance, we see the best risk/reward in the backward-integrated retail layer, anchored to conviction in the product category and demand dynamics, internally funded store and online expansion consolidating the unorganized sector, and visibly improving unit and free cash flow economics on the back of recurring income, mix, and margin drivers.
Behind The Commentary
Prem Manjooran, CIO
35 years investing in Asia
Prem Manjooran is Principal at Tantallon Capital Advisors, where he is the Chief Investment Officer of the Tantallon India Fund and the Tantallon Asia Impact Fund. Prem has spent 35 years investing across Asia through a full range of economic and market cycles. That depth of experience shapes his approach: a seasoned macro view on monetary policy, capital flows, and geopolitics as it pertains to Asia, a disciplined thematic investment approach identifying opportunity and risk, and a deeply calibrated micro, company-by-company perspective built over decades of fundamental investment research and analysis.
Over his career, Prem has built a deep network of relationships across corporate Asia, engaging directly with entrepreneurs and management leadership teams on strategy, capital allocation, and governance. That access and depth of engagement underpins his conviction in Asia’s structural growth story: the view that true innovation, industrialization, and financial inclusion are most durable when paired with disciplined capital allocation and accountability to all stakeholders.
Prior to joining Tantallon Capital, Prem spent 22 years at The Capital Group Companies as an equity analyst and specialist investor covering Asia, moving between market-generalist and industry-specialist roles over the course of his tenure there. He grew up in Mumbai and Calcutta and has spent most of his career living and working across the region he covers.
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