India’s startup market hasn’t collapsed, but it has clearly cooled down from before. Capital is still available, but investors are more cautious and selective than they used to be. Currently, the country favors companies that already have a functional product and a realistic path to profitability, while the riskiest ideas and overpriced growth stories are more likely to be left without funding.
AI is, unsurprisingly, of interest, but the approach in India is pragmatic, and so far, no billion-dollar giants have emerged. Investments are also flowing into manufacturing and other technologies where India has clear strengths.
The state’s more active role brings stability, and additionally, IPOs have signaled to investors that the market is maturing rather than waning.
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The Indian rupee is under pressure this week. This is due to maturing currency contracts and foreign investors potentially pulling their capital out of India.
The rupee was at 89.85 per dollar on Friday and could weaken past 90. Additionally, the government bond market is being monitored to see if demand is sufficient and whether the central bank will support the markets during the quiet year-end trading.
“The cycle of elevated dollar demand from NDF maturities is likely to resume, leaving the currency exposed,” a trader at a large private bank said. Year-end thinning in trading volumes could amplify flow-driven moves, the trader added.
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The Rupee is staying near the historic 90-per-dollar mark as strong dollar demand and central bank support balance each other out.
The currency has weakened for five consecutive days, but the central bank is expected to continue moderating the decline. Markets are currently quiet due to the year-end, and investors are waiting for the Fed’s thoughts & actions for the direction to clarify.
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According to the Indian government, the country’s gross domestic product has already risen to 4.18 trillion dollars, overtaking Japan and even California.
The World Bank and IMF have not yet updated their rankings, but a growth rate of over eight percent makes the “overtake” practically inevitable according to the article, as Japan crawls.
In any case, the stock market has not “celebrated”; the domestic index has risen only 9.7% this year and, for example, a US-listed ETF is up 2 percent, while the MSCI Emerging Markets is +30 percent.
Geopolitical disputes are weighing in, but low inflation and potential interest rate cuts keep the outlook positive – eyes are already on Germany, which India could overtake within three years.
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The rupee has weakened significantly against the dollar this year – the most in three years.
The background to this is that foreign investors have pulled money out of Indian equities and, additionally, a trade deal with the US has not been finalized. The Indian central bank has no longer supported the rupee as strictly.
If a trade deal is reached, the rupee may strengthen for a moment, but downward pressure may then return after a while.
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India’s manufacturing sector ended last year with a bit of a slowdown, as growth in new orders and exports was the slowest in a long time. However, the Purchasing Managers’ Index (PMI) of 55.0 indicates that the industry is still growing.
Low cost pressures and the strength of the order book promise steady progress right at the start of this year.
India’s manufacturing sector growth slowed to a two-year low in December, though it remained above the long-run average, according to the latest HSBC India Manufacturing Purchasing Managers’ Index (PMI).
The seasonally adjusted PMI fell to 55.0 in December from 56.6 in November, marking the weakest improvement in the sector’s health since December 2023. A reading above 50 indicates expansion in the manufacturing sector.
https://www.investing.com/news/economic-indicators/indias-manufacturing-growth-slows-to-twoyear-low-in-december-93CH-4427330
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India is increasingly challenging China, investing over $4 billion into electronics component manufacturing.
The goal is to produce components for phones and cars “in-house” so that the country is less dependent on imports. Participants include the likes of Samsung and Tata. The first major factories are set to begin production as early as this year.
https://www.investing.com/news/stock-market-news/india-approves-46-billion-in-electronics-component-investments-93CH-4427531
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Market expert Ajay Bagga predicts a strong year for the Indian economy. Growth will be driven by income tax and value-added tax cuts, as well as the central bank’s expected interest rate reductions.
He believes that although banking sector results have been temporarily sluggish, the potentially forthcoming easing interest rate levels and a stable currency will accelerate growth, especially in the financial, energy, and technology sectors.
The goal is double-digit nominal GDP growth, which will reportedly be directly reflected in improvements in corporate earnings.
Finally, Bagga said infrastructure-linked sectors such as railways and defence will hinge on government spending signals, particularly in the upcoming Budget. “Railways, defence will again depend on the government infra spend. We are expecting the defence budget to go up. So, defence stocks will probably rally into the budget on that anticipation,” he said.
This shouldn’t be behind a paywall either. 
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According to Bloomberg, India is likely to keep the central bank’s inflation target unchanged at four percent (range 2–6%). The model introduced in 2016 has curbed price volatility, including during geopolitical disruptions. The target will be updated in March.
https://www.investing.com/news/economy-news/india-likely-to-keep-rbis-4-inflation-target-unchanged-4429383
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According to the article below, India’s state-owned oil refiners are still buying Russian crude oil, even though the country is seeking relief from the United States regarding tariffs imposed due to Russian purchases.
The decline in December imports was mainly due to reductions by the private company Reliance (an Indian conglomerate and a major oil refiner) following sanctions. State-owned companies have compensated for part of the drop, so demand is shifting rather than collapsing. Trump threatened additional tariffs.
https://www.cnbc.com/2026/01/07/india-state-refiners-russian-oil-us-tariffs-ioc-bpcl-psu-mukesh-ambani-reliance-trump.html
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This article also discusses the current and future state of the Indian economy.
India’s economic growth is projected to accelerate to 7.4% in fiscal year 2026 (April 1, 2025 – March 31, 2026) despite global uncertainty and US tariffs.
Growth is supported particularly by public spending and eased inflation, which has enabled interest rate cuts. Private consumption is expected to slow slightly, but the article notes that strong momentum at the start of the year shows the Indian economy has nonetheless maintained its exceptional resilience.
https://www.cnbc.com/2026/01/07/india-economy-growth-outlook-fiscal-2026-tariffs-inflation.html
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The Indian automotive sector has strong momentum according to the news below, and Jefferies highlights three companies.
TVS benefits from the growing demand for two-wheelers; it is increasing its market share and is a leader in electric bikes. Mahindra is gaining momentum from the recovery in tractor demand and the popularity of SUV models, and it is also gaining market share in vans. Eicher’s Royal Enfield (or ENSKA) is performing well in premium motorcycles, and exports are growing rapidly.
https://www.investing.com/news/stock-market-news/top-3-indian-auto-stocks-poised-for-growth-according-to-jefferies-93CH-4438467
Indian economist Shaktikanta Das emphasized in his speech that India’s growth is based on the synergy of various strengths as well as disciplined fiscal policy.
The budget deficit and debt-to-GDP ratio have declined significantly from pandemic peaks, and India’s debt-to-GDP ratio is expected to continue decreasing according to IMF forecasts. Going forward, India plans to monitor its economic policy primarily through the debt-to-GDP ratio, with the goal of bringing it down to 50 percent by 2031.
According to Das, India already accounts for a significant portion of global economic growth, and this development is neither temporary nor accidental. The reasons are familiar: a young and digitally-savvy workforce, strong digital infrastructure, and technological expertise—particularly in AI… all of which collectively support productivity growth. Simultaneously, India is seeking self-sufficiency without isolation and is positioning itself as an active participant supporting the rules-based international system in a changing world.
https://www.business-standard.com/economy/news/fiscal-prudence-restoring-room-for-counter-cyclical-policy-shaktikanta-das-126010901363_1.html
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Reliance Industries (India’s largest conglomerate and a major oil refiner) is seeking permission from the United States to continue buying Venezuelan crude oil.
The move is driven by the need to ensure access to affordable oil, as India is under pressure from the West to reduce its use of Russian oil. Reliance previously imported oil from Venezuela under U.S. licenses, but restrictions were tightened in the spring of last year. Venezuela’s heavy crude is well-suited for the company’s refineries in Gujarat.
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India’s consumer price inflation accelerated to 1.33 percent in December from 0.71 percent in November, but remained below economists’ 1.5 percent forecast.
The acceleration in inflation was primarily due to rising food prices (especially vegetables, meat, and fish). In rural areas, inflation was 0.76 percent, and in urban areas, it was 2 percent.
Fuel inflation slowed down. According to the article, low inflation has slowed gross domestic product (GDP) growth, which is worrying the markets.
https://www.cnbc.com/2026/01/12/india-december-inflation-nominal-gdp-growth-rbi-outlook.html
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The article below explains how the Nifty is currently struggling after a miserable 2025, and the start of this year looks to be continuing along the same lines. Indian stocks are still expensive; additionally, their returns are lagging badly behind other emerging markets… the gap is at its widest in decades.
According to the story, India’s economic foundations and banking sector are fundamentally sound, but these positive factors have already been priced in. Investors are worried about excessively high earnings expectations; furthermore, India is currently clearly being left on the sidelines of the global AI boom, as investor money is flowing directly into semiconductors and the like instead of services, where India’s role is smaller.
One of the main points in the article is likely that investors no longer have much of a margin of safety if growth happens to disappoint.
Analysts are forecasting earnings growth of around 16% for Indian companies in the year ahead, well above long-term averages. While economic momentum remains solid, nominal GDP growth is expected to be closer to 9–10%, making such strong earnings growth difficult to achieve even with operating leverage and some margin expansion.
Imports from India into the United States currently face the highest effective tariff rate among major economies, with potential for further increases. Even if tariffs were reduced, the impact on equity markets would likely be limited, as the most exposed sectors make up a small share of market capitalisation.
https://www.investing.com/news/stock-market-news/indian-equities-face-risk-of-another-year-of-underperformance-4450508
India’s GDP is growing at a rapid pace, but there have been problems; the country’s rupee has weakened against the dollar for 8 years already, and the same “pressure” continues this year.
US 50 percent tariffs are eating into the “Make in India” goal, and China’s trade surplus of over $1 trillion is naturally reflected in cheap imports; although Indian industry rose by 8 percent and India produces many phones, 52 percent of the parts come from China anyway.
I don’t know how I forgot or how it passed me by, but India’s youth unemployment is 17.6 percent, which likely casts a major shadow over the country’s economy.
The government expects GDP growth of 7.4% in the current fiscal year, but youth unemployment stands at 17.6%, which is the highest in Asia. Overall unemployment rose to 6.9% in the third quarter of 2025. Morgan Stanley estimates India would need to grow 12.2% a year to meaningfully cut youth joblessness, a pace widely seen as unrealistic.
https://www.investing.com/news/economy-news/why-indias-fast-gdp-growth-is-still-falling-short-4448132
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