India Weathering Geopolitical and Capital Stress

India is facing a near-term macro squeeze from multiple headwinds: foreign institutional investor outflows are pressuring the rupiah and equities; diesel fuel shortages are stranding truckers and constraining logistics; inflationThe rate at which prices rise across an economy. is accelerating on energy costs and food prices; and PM Modi is flying to the UAE to shore up stable energy supplies. Yet S&P Global Ratings explicitly countered headline concerns, arguing that India's economic strength is being underestimated and that foreign outflow fears are overstated given strong domestic consumption and credit expansion.

Indian equities have underperformed on tech sector weakness and broader risk-off sentiment. However, India's merchandise trade balance, FX reserves, and structural growth drivers remain resilient. Modi's UAE visit signals proactive energy diplomacy, reducing tail risks of prolonged fuel disruptions. Goldman Sachs sees India as a relative winner in the energy shock scenario, given its nascent renewable energy infrastructure expansion and import pricing flexibility.

The Delhi market's rally in tech stocks and resilience in domestic sectors (consumer, healthcare, financial services) suggests that institutional flows, while temporarily negative, are not signalling structural deterioration. Bond yields are rising but remain supported by central bank operations and domestic savings. The narrative is one of cyclical pressure overlaid on structural growth, not a regime shift.

Risks include further EM currency weakness if global risk-off sentiment persists, and a prolonged energy shock could force the RBI to hike rates and dampen growth. However, India's manufacturing competitiveness and export potential (driven by China diversification) position it to benefit from longer-term supply-chain shifts, offsetting near-term capital flow volatility.