Market Review - February 2026

Last Updated On: 13 Mar 2026

5 min read

Macroeconomic Update
Debt Market Update
Equity Market Update

Macroeconomic Update

The ongoing conflict in West Asia poses fresh challenges for World Economy as energy supply chain gets disrupted. So far, growth in US continues to hold up well as suggested by strong readings in both manufacturing and services PMI for February. Labour markets in US, though remain weak as evidenced by low non-farm payroll additions and inch up in unemployment rate. Although the dominant services sector saw a slight underperformance, manufacturing in the EU continued to hold up well. On the other hand, growth in China continues to be weak as domestic consumption demand continues to be dragged down by weak property markets.

Inflation in US and EU remained contained and in line with expectations. On the other hand, CPI inflation in China undershot market expectations due to sharp decline in food prices. While ECB kept its policy rates unchanged in Feb'26, all eyes would be on US Fed's Mar'26 meeting, the first one post the US Supreme Court ruling against Trump's tariffs.

New revamped GDP series:

The Government released the new GDP series with 2022-23 as base year (from 2011-12 earlier). The Government not only changed the base year but also incorporated significant methodological changes in the new series to make GDP measurement more robust and reflective of changes which has taken place in the past decade. The new GDP series confirms continued growth momentum. Q3FY26 real growth came in at a strong 7.8% YoY (as against growth of 8.4% in Q2). Full year FY26 GDP growth is estimated at 7.6% (from 7.4% in old series) implying a growth rate of 7.6% in Q4. GDP growth in Q3 was driven by strong growth in private consumption and investment demand. On supply side, both Manufacturing and Services sector posted strong growth.

High frequency indicators point towards continued growth momentum: The high frequency indicators for February suggest that growth continues to hold up well. The effect of tax cuts on demand is clearly visible especially on vehicle registrations which continue to post strong growth for fifth month in a row. Power demand too continues to hold up well while GST collections has also picked up and is being sustained.

Going forward, demand is likely to remain healthy on the back of tax cuts, lagged effect of monetary easing and key trade deals especially that with US and EU. Also, prospects of a good rabi harvest and low inflation are likely to keep rural demand buoyant. However, recent geo-political developments and resultant supply chain disruptions could hamper growth in the near term.

Government finances in comfortable position: Gross tax revenue growth remained healthy in January led by pick-up in corporate taxes and Year to Date (YTD) tax growth now is higher than budgeted. Government has kept a lid on expenditure with YTD expenditure growth now running lower than budgeted. While capex growth has started moderating post front loading in the first half of the fiscal, revenue expenditure is up just 1.3% YoY in 10MFY26.

According to revised estimates for FY26, the Government has indicated that it will adhere to the fiscal deficit target of 4.4% of GDP. This will be achieved through a combination of expenditure cut (largely revenue expenditure) and higher non-tax revenue. In the light of nominal GDP for FY26 being lower than in the old series, the fiscal deficit for FY26 now works out to be 4.5% for FY26 (as denominator is lower).

Current account deficit (CAD) remains benign: Q3FY26 CAD was recorded at 1.3% of GDP compared to 1.5% of GDP in Q2FY26 as trade deficit in Q3 was lower compared compared to Q2. However, Capital account in Q3FY26 was in deficit of USD 10 billion (or 1% of GDP) compared to a surplus of USD 2 billion in Q2FY26. However, capital account deficit in Q3FY26 was lower than Q3FY25.

Going forward, current account is likely to face headwinds from ongoing conflict in the West Asia but is likely to remain within manageable levels due to higher services exports.

CPI inflation picks up in January on expected lines: The Government revised the base year for CPI series to 2023:24 (from 2011:12 earlier) to better reflect changes in consumption structure over the last decade. The new series has reduced weights for food items while that of core items have seen an increase. According to the new series, CPI inflation in January picked up to 2.8% YoY (compared to 1.3% YoY in Dec according to old series) driven by pick-up in food inflation which was on expected lines.

Trade deficit widens on higher gold imports: Trade deficit in January widened significantly due to higher gold and silver imports. 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.

Commodity prices: Crude oil prices have been rising in recent months due to tensions in the West Asia. It rose 2.5% YoY in February after increasing 16% YoY in January. Industrial metal prices remain subdued over concerns related to weak demand, especially in China.

Summary and Conclusion:

Global economy faces heightened uncertainty due to flare up in geo-political tensions in west Asia. If the conflict gets elongated, it can have profound implications for the global economy as energy supply chains get disrupted. Growth in the US has held up well and prospects too remain bright on the back of continued investments in AI/tech and supportive fiscal policy. However, labour markets in US are exhibiting signs of weakness. 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.

Growth in India has 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. Inflation remains well anchored and though it's expected to rise from here on due to the base effect, it's likely to remain close to RBI's target of 4%.

Looking ahead, India's growth is likely to be steady as Government continues to take up reform measures. Monetary easing too will continue to boost demand this year as monetary policy works with a lag. Several trade deals, especially those with the EU and US, will also support growth going forward. However, the recent flare up in geo-political tensions in west Asia poses risk to India's growth and inflation as India's dependence on the region remains high not just through trade but also remittances.