Green shoots visible in Indian economy on buoyant consumer demand; Q2 GDP growth likely around 7%: HDFC Bank

HDFC Bank has said the Indian economy has showed green shoots this festive season with early signals of a jump up in the consumer demand, both in urban and rural segments. The bank said it expects Q2, FY26 GDP growth to be around 7% (6.8% - 7.2%).

In a report titled, Green Signal for Growth, the bank said three factors – healthy agriculture crop and improving farm incomes, GST 2.0 reforms, and 100 basis points cut in the interest rates have led to the traction in the economy. The report, however, pointed out that while the pent up demand seen during festivals may continue in the rural markets going into 2026, urban demand sustainability remains “tentative”.  

“As per the initial market estimates, (auto companies’ commentary) passenger vehicles sales increased by 15% to 35%, reversing the initial Q2 slow down. Besides, gold and jewellery, electronics, mobiles, large appliances, and apparel segments also witnessed an increase in sales, performing better than the last festival season in most segments,” the report pointed out.  

“In quick-commerce segment, home decor, wellness, and fitness saw a jump in sales. Lastly, premiumisation was a key theme this festival season,” the report added.  

HDFC bank said consumers demanded quality and aspirational products like premium watches and phones. In terms of GST pass through, 56% of items being monitored by the government have shown a pass through of 100% or more to prices,” it said.  

“The demand surge during the festive season follows a lull period in Q2, FY26. Urban demand remained weak ahead of the festive season. While some of this weakness could have been led by a delay in buying decisions by households in anticipation of the GST cuts that was not the only factor with the slowdown in urban demand lingering since last year,” it pointed out.  

“Q2 saw the imposition of 50% tariff on Indian exports by the US. While at the aggregate level, exports inched up in September, exports in labour-intensive sectors like textiles, leather etc saw a contraction. However on an average for Q2, goods exports rose by 9% y-o-y driven by front loading of export orders ahead of the tariff deadlines. Moreover India's import bill also came down on the back of lower oil prices,” the report said.

HDFC Bank said despite these drags it is now tracking Q2 GDP closer to 7% (range of 6.8% to 7.2%) driven by a healthy rural economy, continued government spending, a low base from last year as GDP growth was 5.6% in Q2, FY25 along with a low deflator inflating real GDP numbers.