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* Preliminary estimates indicate that EAI-GVA growth decelerated to 6.3% YoY in Aug’26 from 7.5% YoY in Jul’26, due to a moderation in services activity. Industrial activity remained resilient at 9.8% YoY in Aug’26 vs. 10.1% YoY in Jul’26, led by strong manufacturing and electricity generation, while services growth declined to 5.4% YoY in Aug’26 from 7.4% YoY in Jul’26. Agricultural activity improved marginally to 1.5% YoY in Aug’26 from 0.9% YoY in Jul’26, although it remained weak. Consequently, non-farm EAI-GVA growth weakened to 6.8% YoY in Aug’26 from 8.3% YoY in Jul’26.

* EAI-GDP growth accelerated to 16.2% YoY in Aug’26 from 12.1% YoY in Jul’26 and 13.0% YoY in Aug’25. Consumption growth strengthened to 12.8% YoY in Aug’26 from 11.9% YoY in Jul’26, supported by higher revenue spending, resilient personal credit and petrol consumption, although auto sales and rural wage growth moderated. Investment growth also increased to 12.6% YoY in Aug’26 from 12.1% YoY in Jul’26, aided by robust auto sales, industrial credit, capital goods imports and electricity generation, despite a decline in government capex. On the external front, real exports grew 25.2% YoY in Aug’26 (21.3% YoY in Jul’26), while real import growth moderated to 13.2% YoY (19.1% YoY in Jul’26), turning the contribution of net exports positive at 2.4pp in Aug’26 from -0.8pp in Jul’26.

* High-frequency indicators point to a broad-based improvement in economic activity in Sep’26, although some indicators moderated from the strong levels seen in Aug’26. Business sentiment strengthened, with Manufacturing PMI rising to 55.1 in Sep’26 from 52.8 in Aug’26 and Services PMI improving to 55.8 from 54.5. Domestic demand was resilient, with CV sales growth at 38.7% YoY in Sep’26 vs. 44.4% in Aug’26 and PV sales growth at 23.8% in Sep’26 vs. 38.9% in Aug’26. Registered motor vehicle sales growth accelerated to 31.5% in Sep’26 YoY from 19.1% in Aug’26. External buffers also strengthened, with forex reserves rising to USD747.6b in Sep’26 from USD729.3b in Aug’26. Meanwhile, reservoir levels remained below last year, but the contraction narrowed to 18.4% YoY in Sep’26 from 35.9% in Aug’26.

* Our EAI-GVA suggests that economic activity remained resilient in the beginning of 2QFY27, with EAI-GVA growth averaging 6.9% YoY during Jul-Aug’26, down from 7.8% YoY in 1QFY27. The stronger-than-expected 1QFY27 GDP print, resilient consumption and investment activity, and firm high-frequency indicators during Jul-Sep'26 support 1HFY27 growth outlook. We retain our FY27 real GDP growth forecast at 7.0-7.2%, above the RBI's 6.7% forecast. However, tighter financial conditions, elevated inflation (rising El-Nino risks) and a less supportive global environment (high global bond yields) are likely to weigh on growth in 2HFY27. We peg nominal GDP growth at ~13% in FY27.

* We expect the RBI to begin its tightening cycle with a 25bp rate hike in the Oct’26 policy, given resilient domestic activity, volatile crude prices, increasing inflation risks and tighter global financial conditions. The RBI has already begun withdrawing surplus liquidity through OMO sales and other liquidity-management operations, reinforcing the shift toward tighter financial conditions. If crude prices remain above USD100/bbl for a longer period, we see scope for 75- 100bp of cumulative rate hikes during the tightening cycle.

* EAI-GVA growth at a 10-month low in Aug’26: EAI-GVA growth moderated to 6.3% YoY in Aug’26 from 7.5% YoY in Jul’26, with the slowdown primarily led by a sharp deceleration in services activity. Industrial activity remained strong at 9.8% YoY in Aug’26, supported by resilient manufacturing and electricity generation, while agriculture improved marginally to 1.5% YoY in Aug’26 from 0.9% YoY in Jul’26, but remained weak. Services growth, in contrast, declined to 5.4% YoY in Aug’26 from 7.4% YoY in Jul’26, emerging as the key drag on overall growth. Consequently, non-farm EAI-GVA moderated to 6.8% YoY in Aug’26 from 8.3% YoY in Jul’26. Overall, the August print points to some loss of momentum in economic activity, although the continued strength in industry provides an important cushion (Exhibits 1 and 2).

* EAI-GDP growth accelerated to 16.2% YoY in Aug’26 from 12.1% YoY in Jul’26 and 13.0% YoY in Aug’25, supported by stronger domestic demand and a sharp improvement in external demand. Consumption growth strengthened to 12.8% YoY in Aug’26 from 11.9% YoY in Jul’26, supported by higher revenue spending, resilient personal credit and petrol consumption, although auto sales and rural wage growth moderated. Investment activity also strengthened to 12.6% YoY in Aug’26 from 12.1% YoY in Jul’26, aided by robust auto sales, industrial credit, capital goods imports, electricity generation and cement production, despite a decline in government capex. On the external front, real exports accelerated to 25.2% YoY in Aug’26 from 21.3% YoY in Jul’26, while real import growth declined to 13.2% YoY from 19.1% YoY, turning the contribution of net exports positive at 2.4pp in Aug’26 from -0.8pp in Jul’26 (Exhibits 3 and 4).

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