Market Review - April 2026

The month of April, which marked the second month of the West Asia conflict, saw military tensions ease as US and Iran agreed to a temporary ceasefire. However, the Strait of Hormuz remained shut disrupting global trade and constraining supply of essential commodities such as crude oil and fertilizers. Despite the disruption caused to the global economy, US economy grew at a healthy rate of 2% (QoQ, annualised) in Q1CY26 driven a rebound in federal Government spending and continued investments in AI ecosystem. Labour markets also exhibited signs of resilience in US with jobless claims during the month of April at a multi-year low. Eurozone manufacturing activity expanded at a faster pace in April as manufacturers rushed to build inventories of raw materials amidst fear of further supply disruptions and higher costs due to the ongoing conflict. China, too, posted strong manufacturing growth in April, but services and construction activities remained subdued.

Inflation rose across regions in April 2026 due to higher energy costs and is expected to rise further as supply remains constrained. All four major global central banks – Fed, BoJ, ECB and BoE – had their policy meetings in April where they kept policy rates unchanged but all of them highlighted risks to both inflation and growth due to the ongoing conflict in West Asia.

Economic activity in India remained resilient: The high frequency indicators for April suggest that economic activity continue to hold up well despite the ongoing conflict and resultant supply chain disruption. Both manufacturing and services activity recorded better growth in April compared to March alongside continued strong growth in vehicle registrations and a rebound in power demand.

Source: www.gstn.org.in, www.icegate.gov.in, CMIE, PIB, RBI, www.vaahan.parivahan.gov.in, www.posoco.in
^Number >50 reflects expansions and number <50 reflects contraction compared to previous month. @ - figures are preliminary data and are subject to revision. *GST collections for the month is for economic activity in the previous month. ** based on CMIE survey

Going forward, growth is likely to remain steady supported by continued momentum. However, strength and direction of growth momentum will depend upon whether the temporary truce between US and Iran holds and how soon energy supplies are restored to pre-war levels.

CPI inflation inched up in March: CPI inflation rose slightly in March but remained contained as the Government shielded consumers from the rising crude oil prices by keeping retail prices of petrol and diesel unchanged. Food inflation continued to rise driven by higher edible oil and meat prices but remains within target. Core inflation (ex of precious metals) continue to remain benign.

Going forward, inflation is likely to inch up in FY27 on adverse base effect, higher commodity prices and a prospect of a below normal monsoon but is likely to be within the RBI's tolerance band. The geo-political situation in West Asia remains a key monitorable from an inflation perspective.

Trade deficit narrowed significantly in March: Trade deficit in March narrowed to 9 months low despite rise in commodity prices. Net oil import in March was at its lowest level since February 2025 as ongoing conflict resulted in reduced import volumes. Net gold imports too were down significantly in March. Going forward, trade deficit is likely to be under pressure if the ongoing conflict in the West Asia gets elongated. However, healthy growth in services exports is likely to keep CAD within manageable limits.

INR has come under pressure (down 4.6% against USD since start of the war) recently due to concerns around India's overall Balance of Payments (BoP). FY27 CAD is likely to widen, on back of elevated oil prices and resilient domestic demand, it is expected to remain within manageable level. Moreover, and consistent FII outflows by FPIs (USD21bn since start of the war), have raised concerns over capital flows outlook for the year. Moreover, the speculative positioning, especially in the offshore markets resulted in depreciating pressure on INR against USD.

Commodity prices remain elevated on account of West Asia conflict: Crude oil prices corrected in April on the back of US-Iran ceasefire. However, most commodity prices continue to remain elevated as supply chains remains disrupted due to ongoing conflict.

Summary and Conclusion:

Global economy faces heightened uncertainty due to geo-political tensions in West Asia, although a ceasefire between US and Iran offers hope of early resolution of the conflict. If the conflict gets elongated, it can have profound implications for the global economy as not only energy but supply chains for various sectors will get disrupted. Growth in the US so far has held up well on the back of AI/tech related capex and higher Government spending. Recent data also point towards robust labour markets conditions in US. Growth in China is following a two-speed path where domestic consumption and property markets are in a slow lane, but exports and manufacturing are holding up well. 

Before the start of conflict in west Asia, growth in India too had held up well on the back of fiscal (income tax and GST cuts) and monetary (lowering of interest rates) stimulus. High frequency indicators have steadily improved over the last few months with rural demand continuing to hold up well and urban demand too showing signs of uptick. High frequency data since the start of the conflict also points towards continued resilience in the economy. Inflation remains well anchored and though it's expected to rise from here on due to rise in crude oil and other commodity prices, and adverse base effect, it's unlikely to increase significantly. RBI has projected an average inflation of 4.6% in FY27 (albeit with upside risks). 

Looking ahead, the medium-term outlook for the Indian economy seems optimistic, in our view. This optimism is driven by policy continuity, opportunities arising from shift in the global supply chain, and the likely boost to private consumption due to income tax relief and lower borrowing cost. However, the flare up in geo-political tensions remains a key risk to growth this year as supply shock risks lowering growth and increasing inflation.