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* India’s real GDP growth accelerated to 7.8% YoY in 1QFY27 (from 6.9% in 1QFY26), 60 bps higher than our expectation of 7.2%. GVA growth also strengthened to 8.2% YoY in 1QFY27 (70 bps higher than our expectation of 7.5%) from 7.0% in 1QFY26. Nominal GDP growth stood at 10.3% YoY in 1QFY27 (our expectation was 10%).

* The key takeaway is the improving investment cycle, with real fixed investment growth (a proxy for private capex) accelerating to 11.9% YoY in 1QFY27 from 5.8% a year ago. The share of fixed investment in GDP rose to 34.3%, a 3pp jump from 1QFY26.

* The sharp acceleration in GFCF, together with its higher share of GDP, points to a strengthening investment cycle rather than a consumption-only recovery. This is further supported by strong capital-goods activity, bank credit and continued government infrastructure spending, with central government capex up around 30% YoY on a FYTD basis.

* Private consumption remained strong too, with growth accelerating to 7.1% YoY in 1QFY27 from 6.8% in 1QFY26. Exports emerged as another key support to growth, with growth accelerating to a double-digit 12.0% in 1QFY27 from 6.0% in 1QFY26. In contrast, government consumption growth moderated marginally to 4.3% in 1QFY27 (muted state spending) from 4.5% in 1QFY26, while imports contracted 1.1% compared with 5.3% growth in 1QFY26.

* From the supply side, the GDP beat was led by services, with financial, real estate, and professional services recording a robust 12.1% YoY growth in 1QFY27, up from 8.8% in 1QFY26, and the strongest 1Q performance in the past two years. Manufacturing also strengthened, growing 9.2% in 1QFY27 vs 8.3% in 1QFY26, supported by healthy industrial activity and corporate earnings. Construction growth accelerated to 7.7% from 5.2% in 1QFY26, while public administration and defence improved to 7.5% from 4.6%. Trade, hotels, transport, communication, and broadcasting moderated to 8.5% in 1QFY27 from 9.8% in 1QFY26, but remained healthy.

* Utilities recorded a sharp turnaround, with electricity, gas, water supply, and other utilities growing 8.9% in 1QFY27 compared with a contraction of 1.8% in 1QFY26, providing a significant boost to overall GVA. In contrast, primary-sector growth weakened, with agriculture, forestry, and fishing moderating to 3.6% in 1QFY27 from 4.4% in 1QFY26, reflecting heatwave conditions and delayed monsoon arrival. Mining also turned into a drag, contracting 2.4% in 1QFY27 vs 12.4% growth a year earlier. Despite these weaknesses, the broad-based strength across services, manufacturing, construction, and utilities lifted GVA growth to 8.2% in 1QFY27 from 7.0% in 1QFY26.

Outlook:

* The stronger-than-expected 1QFY27 GDP print, along with resilient high-frequency indicators in July’26, provides an upside to our FY27 growth outlook, with real GDP growth now likely to come in at 7.0–7.2%, compared with the earlier expectation of 6.8–7.0% and RBI’s 6.7% forecast. Industrial activity remained healthy (IIP growth strong at 6.7% in Jul’26), while GST collections, e-way bills, electricity demand, petroleum consumption, auto sales, and credit growth continued to signal firm domestic activity. Services activity remained broadly supportive in July’26, with railway passenger and freight traffic, GST collections, and digital payments pointing to continued economic activity, while the services PMI (53.3) remained in expansion territory. Improving monsoon conditions should provide further impetus to rural consumption. The broad-based strength across investment, consumption, manufacturing, and services suggests that the economy has entered 2QFY27 on a firm footing. Risks remain from geopolitical tensions, global trade uncertainty, and the impact of El Niño on rural demand. We peg nominal GDP growth at around 13% for FY27.

* The stronger growth outlook also makes the monetary policy path more relevant. The divergence between the recent MPC minutes and the current monetary policy stance suggests that a rate hike at the Oct’26 meeting remains a possibility, particularly if growth and inflation continue to surprise on the upside. However, we do not expect the RBI to tighten policy immediately in Oct’26. Instead, we believe the Oct’26 policy is likely to prepare the ground for a Dec’26 hike, allowing more time to assess the persistence of inflationary pressures.

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