Domestic Demand Revival Signals India’s Strongest Economic Cycle in Years, Shows PL Capital India Strategy Report

Mumbai | November 27

India’s domestic economy is showing its most convincing signs of revival in several years as household spending rebounds, corporate profitability strengthens and services exports hit record highs, according to PL Capital’s India Strategy Report released on 21 November 2025. The research highlights a decisive shift in India’s growth dynamics: from a government-capex-led recovery to a broad-based consumption-driven expansion, supported by favourable macro conditions and an improving earnings cycle.

Earnings Momentum Turns Positive After Five Quarters of Weakness

For the first time since mid-2024, Nifty earnings estimates have seen upward revisions. PL Capital notes upgrades across FY26, FY27 and FY28 — a significant reversal after five straight quarters of downgrades. The shift is underpinned by strong Q2FY26 results, with companies under its coverage delivering:

• 1% revenue growth,
• 3% EBITDA growth, and
• 4% PAT growth.

Sectors including capital goods, EMS, ports, NBFCs, telecom and healthcare posted robust gains. Commodity-linked businesses — such as cement, metals, and oil & gas — delivered profit expansions between 33% and 58% on the back of margin tailwinds and favourable input trends.

Also Read: Do you hold the SGB 2017–18 Series 9? Your payout is HUGE. Let’s find out.

According to PL Capital, this marks “the clearest inflection point in India’s earnings cycle in over a year”, signalling stronger corporate balance sheets and improving demand visibility.

Festive Consumption Surges Across Categories

The most notable shift highlighted in the strategy report is the resurgence of festive and wedding-season consumption. Diwali 2025 proved to be one of the strongest consumption periods in recent memory, with robust spending across automobiles, jewellery, discretionary retail, electronics and digital payments.

The report cites multiple demand triggers:

Auto sales hit multi-year highs

The September 2025 GST reduction on small cars from 28% to 18%,  lowered effective prices by 5–10%, unleashing a wave of pent-up demand. Passenger vehicle sales hit 5.49 lakh units in September alone, with Tata Motors crossing the one-lakh-unit mark during Navratri–Diwali. Two-wheeler and tractor sales also strengthened on the back of rising rural incomes and better monsoon performance.

A record season for gold and silver

Jewellery demand surged sharply, with gold and silver purchases during the festive period estimated at ₹0.7-1 trillion, driven by lightweight designs, coins and bars as households took advantage of attractive price levels and rising incomes.

Digital payments scale new highs

UPI and card-based transactions hit record volumes during the festive period, reflecting the ongoing shift towards cashless consumption.

PL Capital attributes much of this momentum to the September 2025 GST rationalisation, which reduced levies across several consumer categories, making goods more affordable for both urban and rural households.

Domestic Demand Takes Over From Government Capex

While central government capital expenditure has reached 52% of the FY26 Budget target in the first seven months — well ahead of historical trends — PL Capital warns of possible moderation in the second half. Rising subsidy requirements, GST-related revenue adjustments and slower direct tax growth could constrain incremental spending.

However, the report argues that for the first time since the pandemic, private-sector and household demand are strong enough to become the primary engines of growth.

PL Capital highlights several supportive macro factors:

• Inflation at a 12-year low, easing pressure on household budgets
• A normal monsoon, improving rural incomes
• Expected income-tax reductions, boosting discretionary purchasing power
• A likely 100-basis-point interest-rate cut in FY26, making credit cheaper for households and businesses

Together, these conditions create one of the most favourable consumption environments India has experienced in recent years.

Services Exports Show Structural Strength

Even as merchandise exports faced a 12% year-on-year decline in October, India’s services sector continued to expand. Services exports rose 12% year-on-year to $38.5 billion, the highest monthly figure on record.

Key drivers include:

• Digital services and IT consulting
• Professional services and engineering R&D
• The rapid expansion of Global Capability Centres (GCCs)
• A structural shift towards offshore delivery, aided by tighter US H-1B visa norms

PL Capital notes that services exports now play a critical role in cushioning India from global trade volatility.

Sectoral Trends Reveal a Broadening Recovery

The strategy report highlights strong performance across several sectors:

• Hospitals & healthcare: rising occupancy and elective procedure recovery
• Capital goods: order book visibility improving with private capex revival
• Ports & logistics: strong throughput signalling robust domestic activity
• Autos: sustained demand following price rationalisation and festival strength

On the other hand, the firm remains cautious on IT services, commodities and oil & gas, citing global uncertainties and volatile commodity pricing.

A More Durable Growth Phase Emerging

PL Capital concludes that India’s economic backdrop is strengthening in a way not seen for several quarters. With festive demand beating expectations, services exports providing stability, corporate earnings surprising positively and household sentiment improving, the report suggests that India is now entering a more durable consumption-led growth cycle.

The alignment of rising demand, better profitability, macro stability and sector-level resilience positions India for sustained expansion through FY27 and beyond.

Also Read: India set for its first AI IPO as Fractal Analytics secures SEBI approval; Nvidia–Tesla-linked AI firm plans ₹4,900-crore issue