Indian economy shows recovery despite global uncertainties, private investment gains momentum: Report

New Delhi: The Indian economy has remained resilient in recent months despite an uncertain global macroeconomic environment, with high-frequency indicators pointing to a broad-based recovery across sectors and a sharp rise in industrial credit signalling a revival in private sector investment, according to a report by Kotak Institutional Equities.

The report said the economy has continued to hold up well despite headwinds from geopolitical tensions in West Asia and weather-related risks, with manufacturing, construction, services, consumption and labour market indicators largely showing steady or improving trends.

"The Indian economy seems to be holding up rather well in the current uncertain macroeconomic environment, with most high-frequency indicators suggesting steady or improving growth outlook across sectors," the report said.


According to Kotak Institutional Equities, one of the strongest indicators of the ongoing recovery is the sharp increase in credit flowing to industries, which reflects growing investment activity by the private sector.

"In particular, the sharp increase in industry credit across sectors suggests a broad-based pick-up in private sector investment," the report noted.

The brokerage expects this momentum to continue as companies accelerate investments in value-added manufacturing segments, supported by government policy initiatives.

"We expect the momentum to continue as the private sector invests aggressively in value added manufacturing in chemicals, electricity and electronics chains, encouraged by supportive government policies," the report added.

Data cited in the report showed industrial credit expanded 18 per cent year-on-year in May 2026, while total gross bank credit also recorded robust growth. Credit growth remained strong across several manufacturing industries, including engineering, iron and steel, chemicals and infrastructure, reflecting improving business confidence and capital expenditure.

Despite the encouraging domestic indicators, the report cautioned that India's macroeconomic outlook has become more uncertain due to external developments.

According to the report, the re-escalation of the Iran-US conflict, resulting in higher crude oil prices, along with deficient rainfall during the ongoing monsoon season, has raised concerns over inflation, particularly food inflation.

"India's macroeconomic outlook has become uncertain again, given (1) the re-escalation in the Iran-US conflict, leading to higher crude oil prices and (2) deficient rainfall in the ongoing monsoon season raising concerns about food inflation," the report said.

However, Kotak believes these risks remain manageable at present.

"India's macroeconomic outlook appears manageable for now, but could deteriorate in the event of a prolonged conflict or could improve in the case of a de-escalation in the Iran-US war," the report said.

The brokerage also expressed confidence that geopolitical tensions may not remain elevated for an extended period.

"We continue to believe that economic and political compulsions will restrain both Iran and the US from indulging in a prolonged conflict," the report added.