From Delhi to Wall Street: What’s Driving the Economy and Markets Now

Strengths / positives:

India’s GDP is showing resilience. Deloitte projects growth of ~ 6.4 % to 6.7 % for the current fiscal year, supported by robust consumption and capital formation. Deloitte
The first quarter (of FY2025–26) saw strong growth (~ 7.8 % in some reports) while inflation has eased to relatively low levels (near 2 %), creating a “Goldilocks” scenario (i.e. growth + low inflation) in the short run. The Economic Times
The government is pushing for reforms & stimulus: recent GST (Goods & Services Tax) restructuring is expected to free up about ₹2 lakh crore into the economy. The Times of India+1
The finance ministry is urging industry to invest, expand capacity, and not delay. The Economic Times
India is aiming higher in global growth share: it’s projected that by 2035, India may contribute ~9 % of global GDP growth. ETBFSI.com
In PPP (purchasing-power parity) terms, some forecasts (EY) suggest India could become the world’s 2nd largest economy by 2038. EY
Export forecasts are modestly optimistic: India expects ~6 % export growth in 2025. India Brand Equity Foundation

Challenges / constraints:

Private sector investment (capex) has been cautious. For sustained growth, a new investment cycle is seen as vital. Rediff
Global headwinds (trade tensions, supply chain disruptions, commodity price volatility) could dampen external demand and export growth.
The banking / financial sector must manage risks associated with non-performing assets, interest rate changes, and credit growth. So far, public sector banks have shown strong credit growth, and NPAs have been declining. ETBFSI.com+1
Fiscal constraints: while India’s debt and deficit levels are being managed, expansionary policies must balance fiscal prudence.

Policy & structural reforms:

The 2025 Union Budget sets a fiscal deficit target (~ 4.4 % of GDP) and aims to keep debt in check. Wikipedia+1
The India–UK Comprehensive Economic and Trade Agreement (a free trade pact) has been signed, which could help with market access, especially to Europe. Wikipedia
Technology and AI are key focus areas: India plans to push for equitable access to AI technology for developing countries and is positioning itself in that domain. The Economic Times+1

Indian equities are reacting to global monetary moves: the U.S. Federal Reserve's recent rate cut triggered positive momentum in IT and broader markets. Reuters+1
However, in US dollar terms, Indian markets have underperformed this year compared to many global indices. In fact, the Sensex is cited as among the worst-performing of 17 major markets in 2025. The Economic Times
Small-cap and mid-cap segments are seeing interest, but they are also more vulnerable to volatility. Reuters
Sectorally, IT (which has high exposure to the U.S.) is benefiting from a weaker dollar / lower U.S. rates. Reuters+1
Market sentiment will largely depend on global cues (interest rates, capital flows) and domestic reforms execution.

China-India dynamics remain a key factor. For example, China’s SAIC Motor is cutting its stake in its India JV (MG / JSW), due to stricter investment policies and geopolitical caution. Reuters
India is trying to assert leadership in tech / AI diplomacy — e.g. pushing for Global South access in AI. The Economic Times
Trade agreements (like India-UK FTA) and diversification of supply chains are strategies to reduce over-reliance on any single partner. Wikipedia
Energy security, climate change, and resource competition (rare earths, minerals for renewables) are increasingly strategic levers. S&P Global+1

World / Global Trends: Economy, Geopolitics, Markets

The U.S. Federal Reserve has started cutting rates (a quarter-point cut), which ripples across global markets. Reuters+2The Wall Street Journal+2
But uncertainty remains whether further cuts will come — Fed Chair Powell has described the move as “risk management.” Reuters+1
Commodity markets, especially oil, are volatile. Opaque flows, shadow trading, stockpiling by China, and geopolitical risks make supply-demand balance hard to assess. Reuters+1
The shift toward clean energy is accelerating, with emerging markets playing a dominant role in new clean energy investments. Reuters
On the trade / globalization front: fragmentation is rising. Export flows are increasingly tied to geopolitical alignments. arXiv+2S&P Global+2

U.S.–China rivalry remains perhaps the central fault line: tech competition, trade decoupling, investment restrictions, and supply chain realignments are intensifying. S&P Global+2Bruegel+2
Russia-Ukraine war / Europe security: the conflict continues to strain energy markets, defense budgets, and alliances. Bruegel+1
Cyber & tech conflict: nations increasingly see AI, data, semiconductors, and digital infrastructure as strategic assets and battlegrounds. S&P Global+1
Climate / resource stress: competition over water, critical minerals, supply chains in renewable inputs, and climate-induced migration are becoming more geopolitically salient. S&P Global+1
Geopolitical fragmentation / blocs: Some scenarios project a “three-bloc world” — U.S-led, China-led, and a non-aligned bloc — which can fragment trade, policy coordination, and global norms. Bruegel+1
Trade wars / protectionism: as geopolitical tensions rise, more countries may resort to tariffs, export controls, and trade restrictions — limiting global growth and cross-border investment. FinancialContent+1

Markets are sensitive to central bank moves: rate cuts in the U.S. can boost risk assets globally (especially in emerging markets) via capital flows. Reuters+1
But geopolitical risks (war, supply shocks, policy uncertainty) add a risk premium, increasing volatility. FinancialContent+1
Global allocators are reportedly pulling back from U.S. assets due to geopolitical fragility, and shifting allocations to private markets and alternative investments. Institutional Investor
Some strategists argue a new bull market is starting in U.S. equities, based on signs of weaker labor data and lower interest rates. Morgan Stanley

Here are some of the biggest downside risks and variables to monitor:

Risk / Factor	Why It Matters	Watch Indicators
Monetary policy shifts	Global rate moves (U.S., EU, China) affect capital flows, currency, borrowing costs	Fed minutes / guidance, inflation data, central bank speeches
Geopolitical escalation	Conflicts, trade wars or crises can shock markets and supply chains	News on Ukraine, Taiwan, Middle East, U.S.–China tensions
Commodity / energy swings	Sharp moves in oil, gas, rare minerals affect inflation & trade balances	Oil inventories, OPEC announcements, China’s demand
Global demand slowdown	If key economies (U.S., China, Europe) slow sharply, exports & investments suffer	PMI indices, trade data, industrial production
Policy / reform execution in India	India’s optimism depends on actual investment, financial stability, regulatory continuity	Business capex data, regulatory changes, ease-of-doing-business metrics
Capital flow reversals	Emerging markets like India are vulnerable to sudden outflows if global sentiment sours	FII (foreign institutional investor) data, bond flows, currency volatility