India's GDP Grows 7.8% as Nifty and Sensex Slide on Rate Hike, Oil Prices

India's National Statistics Office (NSO) reported real GDP growth of 7.8% for the April-June quarter of fiscal year 2025-26, up from 6.5% in the same period a year earlier, according to data released on August 29, 2025. Nominal GDP growth for the quarter came in at 8.8%.

At the same time, India's benchmark stock indices have moved in the opposite direction. The Nifty 50 was down about 8% year-to-date as of early September 2026, and the dollar-denominated MSCI India index had fallen roughly 9.5% over the same period, according to market data cited by financial outlet Multibagg.

What the growth data shows

The NSO's sector breakdown for the April-June quarter showed manufacturing growing 7.7% and construction 7.6%, both above the headline rate. Agriculture and allied activities grew 3.7%, while mining and quarrying contracted 3.1%, according to the official release reported by the Tribune.

Why stocks have not followed

Market strategists cite several factors working against Indian equities despite the strong headline growth. Foreign portfolio investors pulled a record $19.7 billion out of Indian equities in fiscal year 2025-26, according to Multibagg.

Rising US Treasury yields have also made dollar assets more attractive relative to emerging-market equities, reducing the relative appeal of Indian stocks even when local growth is strong.

Crude oil prices added further pressure. Brent crude traded near $104 a barrel in early October 2026 amid tensions in West Asia, according to Outlook Business. Separately, India's crude oil import basket — a different benchmark from Brent — averaged close to $116 a barrel in September, up from about $82 in July, according to the RBI's October policy statement. Because India imports most of its oil, higher crude raises import costs and inflation risk, which investors price into equities independently of GDP data.

A rate hike adds to the pressure

On October 7, 2026, the RBI's Monetary Policy Committee voted unanimously to raise the repo rate by 25 basis points to 5.50%, its first increase since February 2023. The committee also shifted its policy stance from "neutral" to "calibrated tightening," though two of the six members said they would have preferred to keep the stance neutral, according to Shoonya. The central bank cited consumer price inflation of 4.8% in August 2026 and a monsoon shortfall of 13% below average as reasons for the move.

The rate decision coincided with a sharp one-day sell-off: the Nifty 50 fell 371 points, or 1.6%, to 22,231.80 and briefly touched a 2026 low of 22,179.90, while the Sensex dropped 1,045 points, or 1.4%, to 71,593, according to market coverage from Outlook Business. More than ₹10 lakh crore in market capitalisation was erased in that single session, and foreign institutional investors sold about ₹6,100 crore worth of Indian equities on October 7, according to Outlook Business.

Earnings and index composition

Analysts cited by Multibagg also pointed to a lag between GDP growth and corporate earnings: profit growth at listed companies slowed through fiscal years 2025 and 2026 even as the broader economy expanded, making current stock valuations look expensive to investors. They added that recent growth and investor rotation have favoured sectors such as manufacturing, NBFCs and consumer tech over traditional index leaders like large banks and IT, which may not be fully reflected in the weighting of headline stock indices.

Officials have not described the divergence as a sign that the GDP data is inaccurate. The rate hike was explicitly framed by the RBI as a response to inflation and monsoon-related price pressures rather than to slowing growth, suggesting the central bank still views the real economy as expanding even as it addresses price pressures that are also unsettling equity markets.