India's economy stays resilient as Iran-US ceasefire cools global risks: SBI Capital Markets

The ceasefire between Iran and the US has eased concerns over global trade and energy supplies, with shipping through the Strait of Hormuz returning to near pre-war levels and oil prices cooling sharply. However, uncertainty over the durability of the truce continues to keep geopolitical risk premiums elevated, according to SBI Capital Markets' latest EcoCapsule report.

The report said both countries have announced a cessation of hostilities based on 14 foundational principles, restoring largely unrestricted access to the Strait of Hormuz. Vessel traffic has recovered to levels seen before the conflict began, although shipping volumes are still gradually normalising.

Despite the progress, markets remain cautious amid sporadic skirmishes and lingering concerns over whether the ceasefire will hold. If peace persists through the second half of calendar year 2026 (H2CY26), global growth projections could improve, with the US economy likely to remain resilient, SBI Capital Markets said.

Oil prices retreat, easing inflation concerns

Brent crude has fallen to around $70 per barrel, returning to levels seen before the conflict. The report said rebuilding global inventories, reserve creation and infrastructure repair work are expected to support prices, while the resumption of sanction-free Iranian oil exports should increase global supply.

The sharp correction in crude prices has eased inflationary concerns for central banks worldwide. Inflation readings for June 2026 are expected to reflect the benefits of the mid-month ceasefire, with price trends likely to normalise further from July as second-round inflationary effects subside.

Lower oil prices have also reduced pressure on emerging market currencies, diminishing the need for aggressive monetary tightening, the report noted.

High-frequency indicators point to resilient Indian economy

Despite global disruptions during the first quarter of FY27, India's economy appears to have remained largely resilient, supported by strong domestic demand.

According to the report, high-frequency indicators—including Purchasing Managers' Index (PMI), automobile sales, fuel consumption (excluding LPG), credit growth, UPI transaction values, and electricity demand—suggest economic activity remained broadly intact despite disruptions in sectors such as airlines, ceramics and fertilisers.

As supply chains improve, these affected sectors are expected to recover in the second quarter of FY27, helping sustain growth momentum.

However, SBI Capital Markets flagged the weak monsoon as a key domestic risk. As of July 2, 2026, all-India rainfall was 33.5% below normal, delaying the sowing of paddy, oilseeds and pulses across large parts of central and eastern India. A prolonged rainfall deficit could weigh on rural demand and economic growth in the third quarter.

Fiscal pressures emerge after fuel tax cuts

The report said the government's fiscal position has come under pressure following reductions in excise duties on fuel aimed at supporting oil marketing companies (OMCs).

At the same time, revenue expenditure increased as higher fertiliser subsidies, driven by expensive natural gas imports, pushed up government spending.

As a result, the fiscal deficit during the first two months of FY27 reached 9.6% of the full-year Budget Estimate, compared with just 0.8% during the corresponding period last year.

SBI Capital Markets said it may take several months for OMCs to recover before fuel levies can be restored. Until then, growth in corporate tax collections, import-related GST revenues and proceeds from disinvestment and asset monetisation will remain crucial for maintaining fiscal discipline.

Rupee, bond markets recover as external risks ease

The report noted that the Iran-US ceasefire, coupled with coordinated measures by the government and the Reserve Bank of India (RBI), has helped stabilise India's external sector.

The rupee has recovered from record lows, while the benchmark 10-year government bond yield has rebounded, although it remains slightly above pre-war levels. Corporate bond markets also showed signs of improvement in June after a sharp decline in private placements during the first two months of FY27.