Bhandari expects India’s economic growth to moderate from 7.8% but remain around 7-7.5% over the next few quarters. At the same time, she expects inflation to remain above the Reserve Bank of India’s (RBI) upper tolerance band for several months, leading to 25-basis-point rate hikes in October and December, while new free trade agreements could provide another leg of export-led growth.
“I do think that goods exports growth are going to be a very strong driver of growth over the foreseeable future,” Bhandari said.
She said India’s growth has surprised on the upside despite weak monsoons and elevated crude oil prices, supported by government capital expenditure, formal sector consumption and a sharp rise in exports.
According to Bhandari, real exports have risen 12% year-on-year, while nominal exports have increased 25%, marking a shift for an economy that has traditionally relied more on domestic demand.
Also Read: Ladakh resumes helicopter services to boost connectivity in winter months
She expects the next phase of export growth to come from recently signed trade agreements, particularly with consumer markets rather than supplier economies.
“The India-UK FTA has been in action for the last one-and-a-half to two months, and India’s exports to the UK are rising 12% month on month,” she said, adding that future agreements with the European Union could further strengthen India’s export competitiveness.
While the real economy remains resilient, Bhandari said foreign direct investment (FDI) and foreign portfolio investment (FPI) have yet to become meaningful growth drivers. However, she expects stronger manufacturing and export performance to attract more investment over time.
On the macroeconomic front, Bhandari flagged two major risks: higher oil prices and tighter global financial conditions.
HSBC’s commodities team has raised its 2027 Brent crude oil forecast to $85 per barrel, reflecting expectations of a fragile geopolitical environment that could keep oil prices volatile.
She also warned that rising US bond yields, coupled with a strengthening dollar, could tighten financial conditions across emerging markets, including India.
“What helps India is that growth is strong,” she said. “Even if we see a little bit of rate hikes from here… hopefully, it won’t really put us into the danger zone.”
Bhandari expects consumer inflation to remain above 6% during October, November and December, increasing the likelihood of further monetary tightening.
“My sense is for about three months or so, inflation will be higher than 6%,” she said. “For October and December, yes, 25 basis points in each, with risks of more depending on how things evolve.”
On trade negotiations, Bhandari said she is more optimistic about the proposed India-European Union trade agreement than an India-US bilateral deal.
She noted that the rupee has depreciated around 25% against the euro over the past 18 months, and once tariffs are lowered under an EU agreement, Indian exporters could enjoy a 35-40% price advantage.
“I am very hopeful that by the middle of 2027 it happens,” Bhandari said, referring to the India-EU trade agreement, which she believes could provide another boost to India’s export sector.
For the full interview, watch the accompanying video
Catch all the latest updates from the stock market here