India's Investment Outlook Strengthens as Credit and Exports Rebound
HSBC reports a strengthening investment outlook for India driven by credit growth, rising corporate revenues, and a rebound in exports.
India's investment outlook is showing significant signs of strengthening, driven by a surge in credit growth and rising corporate revenues. According to a recent report by HSBC titled “Why so down on India?”, these factors point toward a robust increase in private capital spending, signaling a potential shift for firms that have lagged in the capital expenditure cycle for years.
Credit Growth and Corporate Spending
The report highlights a notable acceleration in credit growth, which is seen as a precursor to stronger investment spending. Data shows that funds flowing into the commercial sector rose to 6.6 per cent of GDP during the April-September 2026 period, a significant jump from the 4.7 per cent recorded a year prior.
While smaller businesses have increased their borrowing, the most striking acceleration has been seen among larger companies. These entities typically lead major capital expenditure projects, suggesting a renewed appetite for expansion. Furthermore, corporate revenue growth has surpassed its decade-long trend in both nominal and real terms, providing a strong justification for further investment even in an environment of rising interest rates.
Positive Economic Indicators
The HSBC India economics team tracks approximately 100 growth indicators, and the results for the latest quarter are encouraging. Nearly 70 per cent of these indicators signaled expansion, a marked improvement from the just under 55 per cent seen in the second quarter.
Foreign Direct Investment and Infrastructure
There is growing optimism regarding the recovery of Foreign Direct Investment (FDI). HSBC suggests that India's continued economic growth and ongoing reforms are likely to attract global companies back to the market. A specific area of growth is data centre investment, although the report notes that this could lead to a temporary spike in the import of expensive equipment.
On the domestic front, the government's commitment to infrastructure remains a pillar of support. Central capital expenditure has consistently exceeded 3 per cent of GDP annually, a significant increase from the pre-COVID-19 levels, which were below 2 per cent.
Exports and External Resilience
India has managed to cushion itself against oil price shocks through rising services exports, which have kept the current account deficit narrow and steady. Interestingly, the report notes a recent acceleration in goods exports. Despite a global slump in non-AI goods trade, India appears to be gradually gaining a larger share of the global market.
Challenges and the Road Ahead
Despite the optimistic outlook, the report does not ignore the existing headwinds. Weak rural demand, triggered by repeated heatwaves and rainfall shortages, continues to be a concern. Additionally, inflation pressures have squeezed corporate margins and weighed heavily on households.
However, there is a silver lining. HSBC suggests that a cooling of global energy prices in the coming months could provide substantial relief to company margins. While a rapid reversal of inflation is not guaranteed, the economics team expects consumer price inflation to eventually stabilise.