Retail Inflation Hits Eight-Year Low, Fuels Rate Cut Hopes
India's retail inflation, measured by the Consumer Price Index (CPI), registered a significant drop to 1.54% in September 2025, marking its lowest level in over eight years since June 2017. This substantial decline from 2.07% in August and 5.49% in September 2024 was primarily attributed to a sustained moderation in food prices, which remained in negative territory for the fourth consecutive month. The average inflation for Q2 FY26 stood at 1.7%, below the RBI's projection of 1.8%. The Reserve Bank of India (RBI) had already lowered its inflation projection for 2025-26 to 2.6% from 3.1% in August.
Economists are now anticipating a potential interest rate cut by the RBI in its December monetary policy review, especially if the growth momentum falters. However, core inflation, excluding food and fuel, saw a slight increase to 4.43% in September from 4.1% in August, reaching its highest point since September 2023, largely due to a spike in precious metal prices and housing costs.
Government Capital Expenditure Remains Strong, GDP Growth Forecast Revised Upwards
India's general government capital expenditure (capex) is projected to hover around 5% of the GDP in FY26. While this is slightly below the 5.1% recorded in FY25 and the peak of 5.4% in FY24, it reflects a continued strong focus on capital investment by both central and state governments, which is a positive indicator for economic growth. The Centre's capital outlay grew over 43% in the first five months of the current fiscal year, while state governments also increased their capex by 14%.
The RBI's Monetary Policy Committee has revised India's GDP growth forecast for FY26 upwards to 6.8% from an earlier projection of 6.5%. This optimistic outlook is underpinned by strong domestic demand and ongoing economic reforms. Despite a robust Q1 FY26 real GDP growth of 7.8%, experts like C. Rangarajan and D.K. Srivastava suggest that India's long-term potential growth rate is likely to stabilize around 6.5%.
Indian Markets React to Global Tensions, IPO Market Sees Surge
Indian equity benchmark indices, the Sensex and Nifty, closed in the red on October 13, ending a two-day winning streak. This downturn was largely influenced by global market weakness following US President Donald Trump's announcement of additional 100% tariffs on Chinese imports, effective November 1. IT and FMCG stocks experienced selling pressure, while companies like Adani Ports, Bajaj Finance, and Bharti Airtel registered gains.
Despite the market volatility, October 2025 is shaping up to be a record month for Initial Public Offerings (IPOs) in India, with approximately $5 billion expected in listings. Major companies like Tata Capital and LG Electronics are among those preparing to enter the public market, potentially surpassing last year's IPO activity.
Trade Diplomacy Intensifies with US and Canada
India is set to hold crucial trade talks with the United States this week, aiming to conclude the first phase of a bilateral trade agreement. New Delhi is seeking to increase its energy imports from the US as part of these negotiations, which are targeted at doubling bilateral trade to $500 billion by 2030. These discussions come amidst US concerns over India's purchases of Russian oil.
In a move to mend strained relations, India and Canada have also agreed on a new roadmap for cooperation. This roadmap includes collaboration in trade, agriculture, and critical minerals, signaling both nations' intent to move past recent diplomatic tensions.
Key Business Developments
Oil and Natural Gas Corporation (ONGC) announced plans to establish a new trading company. This entity will manage the buying and selling of crude oil and refined fuels for its group companies, with an ambitious target of generating approximately $1 billion in profit. In other corporate news, HCL Technologies reported strong Q2 FY26 results, with revenue up 5.24% and net profit increasing by 10.2%. Additionally, Advait Energy's subsidiary signed a Memorandum of Understanding (MoU) with the Gujarat Government for investments worth Rs 14.5 billion, and Kotak Mahindra Bank completed the merger of its microfinance subsidiaries.