India’s latest GDP print should have been a moment for Dalal Street to break into applause. Real GDP growth came in scorching hot at 8.2% in Q2 of FY26, lifting first-half growth to 8.0% — far higher than last year’s 6.1%. By any global comparison, India is sprinting.
Yet, the equity markets took the number with a shrug. The benchmark Nifty 50 is up 71 points at 26,274 at 9:59 AM. Investors are choosing to stay on the sidelines — confused, not confident. Because, behind the headline lies a more complicated story — one where the macro looks strong, but the market’s profit calculus looks weaker.
1. The low-deflator problem: strong real growth, but weak earnings signal
The biggest red flag is the GDP deflator, which was very low this quarter due to unusually soft inflation. While real GDP shot up 8.2%, nominal GDP — the number that matters for corporate revenues, pricing power and earnings growth — rose much more modestly.
A low deflator compresses nominal growth, and that’s what listed companies feel in real life. Even if factories produced more and services expanded sharply, the pricing environment remained weak, which means:
a) Lower revenue realisation and weaker topline growth
b) Softer EBITDA and profit expansion
For markets, nominal GDP is the real tell, and this quarter it is whispering, not shouting. Equity investors fear that the profit cycle may not track the impressive real GDP print.
2. The RBI dilemma: strong GDP makes a Dec 5 rate cut harder
Markets were hoping that easing headline inflation and global central-bank pivots would nudge the RBI towards a more dovish stance on December 5.
But an 8.2% growth print complicates that narrative.
When the economy is running this hot:
a) The RBI cannot justify a rate cut without risking a credibility hit
b) It becomes harder to make a case for further easing of liquidity conditions; it could even reverse
c) Core inflation may start to become a concern again
For equities — especially rate-sensitive sectors like banking, real estate, and autos — a delayed rate-cut cycle is no good news.
So, ironically, the stronger the GDP print, the further the market’s monetary-policy hopes get pushed out. That’s also the reason bond yields rose, not fell, after the GDP numbers came out on Friday.
3. Strong GDP, weak tax collections: an uncomfortable divergence
As of November 10, 2025, net direct tax collections for FY26 stood at Rs 12.92 lakh crore — a 7% year-on-year increase.
In the same period (April–Nov 10), gross direct tax collections reached Rs ₹15.35 lakh crore, up about 2.15% over last year — indicating modest growth before adjusting for refunds.
On the indirect-tax side, the latest GST collections data shows gross GST receipts of Rs 1,95,936 crore in October 2025 — up 4.6% YoY (from Rs 1,87,346 crore in Oct 2024).
However, when adjusted for refunds, net GST collection growth in October 2025 has been far more muted — just 0.2% YoY.
The fact that net direct-tax collections are only +7% in a period of 8%+ real GDP growth suggests that corporate profits and individual income growth have not risen in lockstep with output. In other words, increased economic activity may not be translating into proportionate gains in taxable income or corporate profitability. Several factors could cause this divergence — growth led by government spending, informal-sector activity, and agriculture, all of which contribute to GDP but not to tax revenue.
On GST, the halving of growth in October 2025 compared to the annual average captures the hit on government finances — not unexpected, but also not enough to tell us whether the rate cut is driving demand growth.
The relatively tepid growth in tax collections — both direct and indirect — supports the view that the recent GDP spurt may be less reflective of robust profit growth or broad-based consumption demand, and more of a capex- or public-spending-driven uptick. For markets that value earnings growth, robust consumption, and healthy corporate profitability, this raises legitimate concerns.
4. The story behind the shrug
Put together, the picture becomes clear: real GDP is booming, but nominal GDP is not; tax revenues are soft, and a rate cut now looks harder. And equity markets care about profits, liquidity, policy direction, and revenue growth — not statistical strength. This is why Dalal Street isn’t dancing to the blockbuster GDP tune as one would expect. A strong GDP print may be great for the economy, but for the stock market, this quarter’s earnings numbers are a bigger source of concern or comfort, depending on the sector being talked about. The aggregate picture is grossly misleading because of the stark divergence in the performance of sectors and companies.
As for the macro picture, investors are asking: will profits grow if nominal GDP stays weak; will policy remain tight because growth looks too strong; why is tax buoyancy not keeping pace with GDP; and is the growth narrow, capex-led, and less earnings-accretive? But the answers to these questions will come only in the next quarter, when we see a full-quarter impact of the GST cuts — something the markets have been relying on for growth.
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