Market Radar India: Domestic investments surge as Middle East conflict strains growth outlook

The Macro View: A deepening energy crisis

As the war in the Middle East enters its third week, the prolonged conflict and resulting disruption of export flows through the Strait of Hormuz pushing oil prices firmly above USD 100 a barrel are exerting a sustained and increasingly visible toll on India's macroeconomic stability.

With the nation importing approximately 90% of its crude oil and nearly half of its liquefied petroleum gas (LPG), this sustained pressure is rippling through the economy, prompting rationing that has disrupted operations across key industries, from hotels to fertiliser and aluminium production.

Consequently, economists are downgrading the country's outlook; Goldman Sachs has cut its 2026 growth forecast by half a percentage point to 6.5%, while rating agency ICRA warns that an extended USD 100-per-barrel average could widen the current account deficit to between 1.9% and 2.2% of GDP for the 2026/27 financial year.

Complicating these geopolitical headwinds is a brewing domestic energy challenge. India is bracing for a record surge in peak power demand, expected to top out at 283 gigawatts during the upcoming hot season, marking a 13% jump from the previous summer record.

This surge will add significant strain to an energy grid already struggling with disrupted shipments of liquefied natural gas, forcing the government to heavily rely on coal power plants and defer their maintenance shutdowns.

Real Estate Resilience and the Tier-2 Expansion

Despite the macroeconomic squeeze, India's real estate sector is charting a remarkably bullish course. The broader Asia Pacific (APAC) region saw a rebound in property investments in 2025, and India led the charge alongside Singapore, recording a massive 29% year-on-year growth to reach USD 8.5 billion in inflows.

Office assets remain the anchor of this growth, accounting for over half of total institutional inflows in the country. This appetite is evidenced by corporate movements such as US Bancorp, which is currently in talks to lease more than 650,000 square feet of office space in Chennai for a new global capability centre, whilst concurrently evaluating another 400,000 square feet across Bangalore and Hyderabad.

However, the most explosive growth is quietly brewing outside the traditional metropolitan hubs. Land prices in Tier-2 and Tier-3 cities, including Bhubaneswar and Varanasi, are forecast to surge by 25% to 100% over the next two to four years.

This rapid appreciation is being heavily subsidised by state and central infrastructure pushes, such as the newly approved INR 1 trillion Urban Challenge Fund.

By mandating that approved projects raise at least 50% of their funding from the market, the government hopes to translate this into INR 4 trillion of investment over the next five years, improving urban infrastructure, expressways, and regional airports that unlock new development potential.

Sovereign Manufacturing and AI Ambitions

To insulate the economy from future supply chain shocks and rival China as a manufacturing hub, New Delhi is aggressively funding local technology ecosystems.

The government is preparing to unveil an USD 11 billion (more than INR 1 trillion) fund designed to support domestic chipmaking, offering subsidies for chip design, manufacturing equipment, and supply chain development. The objective is to achieve parity with major global semiconductor producers by 2032.

Concurrently, policymakers are overhauling the smartphone Production-Linked Incentive (PLI) programme; the new draft policy explicitly links government subsidies to export volumes and the integration of locally manufactured components, shifting the focus from basic assembly to high-value addition.

Private markets are actively capitalising on these sovereign ambitions. In a landmark move for India's AI infrastructure, Gorilla Technology and Yotta Data Services have signed a deal to deploy approximately 640 high-performance servers equipped with over 5,000 GPUs in Navi Mumbai.

This deployment is expected to generate upwards of USD 500 million in revenue over the next five years and forms a critical backbone for India's domestic AI capabilities.

Meanwhile, traditional funding avenues are being complemented by alternative finance, highlighted by Kotak Alternate Asset Managers' plan to raise up to USD 2 billion for its third private credit fund, targeting high-growth sectors like data centres and pharmaceuticals.
 

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Look out for a new edition of the GRI Institute's Market Radar India next week!