India’s Growth Engine Running Strong: UBS Raises Growth Forecast to 7.4% for FY26

UBS has raised its growth forecast for India to 7.4% for FY26, citing strong growth momentum and supportive monetary policy. The brokerage firm expects the economy to normalize to 6.4% in FY27.

Strong Growth Momentum

India’s economy posted an above-trend GDP expansion of 8.2% in the September quarter, driven by targeted income tax cuts, GST reductions, and supportive monetary policy. UBS believes that these factors will continue to support growth, leaving room for further upside.

Following this performance, UBS has raised its growth forecast to 7.4% for FY26, before expecting it to normalize to 6.4% in FY27. The brokerage firm expects corporate earnings growth to move closer to low double digits, with a projected earnings growth of 10.2% in FY26, accelerating to 15.4% in FY27.

Portfolio Changes

UBS has made changes to its India portfolio, adding Bharat Heavy Electricals and Cognizant Technology, each with a 2 percentage point weight, and Hyundai Motor India with a 4 percentage point weight. Mahindra & Mahindra, CG Power & Industrial Solutions, and L&T Finance have been removed.

The brokerage firm has also increased its exposure to Larsen & Toubro by 1 percentage point and Axis Bank by 2 percentage points, while trimming Siemens by 1 percentage point and Hindustan Unilever by 2 percentage points. For more information on stock market news, visit our website.

Tariff Negotiations with the US

UBS believes that India’s tariff negotiations with the US are progressing, and while a final settlement is not yet certain, the trajectory appears constructive. The brokerage firm notes that the impact of the current 50% tariff rate on India has been limited, with vehicle sales showing strong growth following GST rate cuts.

Although UBS does not expect this pace to persist, the trend is being supported by steadily improving bank loan growth. Earlier income tax cuts, subsequent GST reductions in 2025, contained inflation, and continued support from the RBI are also providing a favorable backdrop. To learn more about GST reductions and their impact on the economy, click here.

Earnings Growth

UBS reiterated that earnings growth of 10.2% for FY26 remains achievable and expects a sharper acceleration in FY27 to 15.4%. The financial sector remains the primary driver, led by banks, with non-bank financial companies and insurance firms contributing to a lesser extent.

Financials continue to be one of UBS’s preferred sectors, with the brokerage firm believing that FY27 could be a particularly strong year, potentially exceeding double-digit growth. Loan growth and asset quality are expected to improve, with net interest margins also expected to strengthen by then. For updates on financial sector news, visit our website.

IT Services

UBS noted that the impact of AI is becoming clearer, with both positive and negative implications. While AI-driven productivity gains could reduce headcount needs, especially in seat-based billing models, demand for customized AI solutions remains strong.

Hyperscalers are unlikely to meet all client requirements on their own, and over time, these forces are likely to balance out rather than result in a purely negative outcome. Indian IT companies are already adapting by engaging more directly in AI initiatives and evolving their business models. To learn more about AI in IT services, click here.

Conclusion

In conclusion, UBS’s raised growth forecast for India to 7.4% for FY26 is a positive sign for the economy. The brokerage firm’s expectations of strong growth momentum, supported by targeted income tax cuts, GST reductions, and supportive monetary policy, are likely to have a positive impact on the stock market.

Investors can expect corporate earnings growth to move closer to low double digits, with a projected earnings growth of 10.2% in FY26, accelerating to 15.4% in FY27. The financial sector is expected to remain the primary driver, led by banks, with non-bank financial companies and insurance firms contributing to a lesser extent. For the latest updates on Indian stock market news, visit our website.