India at an Inflection Point: Reading the Early Signals from DSP NETRA

India’s financial markets are flashing a set of early warning signals - subtle, data-driven, and easy to ignore in a headline-driven bull market. DSP’s NETRA: Early Signals Through Charts (December 2025) offers a timely lens into these undercurrents, spanning macro growth, capital cycles, equity leadership, fixed income opportunities, and sectoral shifts. For investors, the message is not alarmist - but it is cautionary.

Nominal Growth Has Downshifted - And That Matters

India’s nominal GDP growth, a combined reflection of real growth and inflation, has structurally slowed. From an average of ~14–15% during the post-liberalisation and early-2000s boom, nominal growth has settled closer to the 8–10% range in the 2020s. Crucially, since FY14, nominal growth has rarely crossed 12%, barring the COVID base-effect year

Why does this matter? Because nominal growth is the lifeblood of corporate revenue expansion, wage growth, tax collections, and debt servicing. With inflation anchored near the RBI’s 4% target, a 10% nominal growth rate translates to just ~6% real growth arguably insufficient for a country seeking to fully capitalise on its demographic dividend.

Consumption Stress and the Capex Conundrum

One of the clearest fault lines runs through household balance sheets. The report highlights a worrying divergence: household debt has risen faster than disposable incomes, leading to structurally weak consumption growth. This, in turn, has impaired private sector visibility on demand, reinforcing a stop-start capex cycle.

While government capex has grown at a healthy ~16% CAGR since FY13, most private investment indicators - industrial credit, engineering goods imports, project completions - remain subpar compared to the previous decade. The quality of capex also matters: spending has skewed towards consumption-oriented infrastructure rather than productivity-enhancing assets, limiting multiplier effects on employment and wages

External Sector : From Powerhouse to Mediocrity

India’s services exports especially IT have been the single biggest engine of dollar inflows over the past two decades. However, NETRA points to a sharp slowdown. Net services exports growth has fallen from ~35% CAGR (FY01–FY13) to ~9% (FY13–FY25).

Goods trade tells a similar story. Seven out of ten major export categories have seen a double-digit decline in CAGR post-FY13. Net trade growth over the last 12 years stands at a modest ~3%, underscoring that India’s external sector is operating well below its potential, even after adjusting for global growth moderation and COVID distortions.

Bonds Are Quietly Becoming Attractive

Ironically, patchy growth is creating opportunity in fixed income. With CPI inflation running well below historical averages and government borrowing stabilising as a share of GDP, supply-side pressures on bond yields have eased.

The spread between nominal GDP growth and the 10-year G-Sec yield has narrowed to ~2.5–3%, signalling room for lower term rates if growth remains uneven. At the same time, the repo-to-10Y spread remains wide enough to offer carry plus potential capital gains, making longer-duration government bonds increasingly attractive at current yield levels of ~6.55–6.65%

Equity Markets : Leadership Is Narrowing

Indian equities continue to hover near lifetime highs but market breadth tells a different story. Less than 3% of Nifty 500 stocks are at 52-week highs, and only about half trade above their 200-day moving averages. This is a classic late-cycle signal: indices rise, but participation shrinks.

In such phases, market leadership often rotates back to the largest, most liquid stocks. NETRA shows early signs of renewed outperformance by the top 10 stocks, driven by relative valuation comfort and profitability depth - especially as many recent IPOs have entered the market at elevated multiples with thin earnings bases

Capital Availability : Too Much of a Good Thing ?

Another red flag lies in capital issuance. IPOs, OFS-heavy fund-raising, and promoter stake dilution have surged, with FY26 year-to-date fund-raising already crossing 70% of last year’s all-time high. Historically, such phases of abundant capital have coincided with late-cycle exuberance, often preceding periods of correction or consolidation.

Promoters and even global multinationals appear rationally opportunistic selling into rich valuations rather than reinvesting aggressively. This rising equity supply acts as a natural counterbalance to investor optimism.

IT : From Market Darling to Defensive Hedge ?

Perhaps the most contrarian insight in the report lies in Indian IT. The sector’s weight in benchmark indices is near decadal lows, valuations have derated meaningfully, and relative performance versus Nasdaq is at multi-year troughs.

While this does not guarantee absolute returns, IT along with select banks may serve as a defensive allocation in a volatile market, offering relative safety if broader earnings growth disappoints. Several large IT names are trading closer to historical valuation averages despite ROEs remaining robust.

The Finblage Takeaway

DSP NETRA does not predict an imminent crisis. Instead, it urges investors to recalibrate expectations. India’s growth engine is still running -but at a lower gear. In such an environment, asset allocation discipline, quality bias, duration exposure in bonds, and large-cap selectivity in equities become far more important than chasing momentum.

Markets fluctuate. Narratives swing. But as this report reminds us, charts when read carefully - often whisper the truth before headlines scream it.

Source : Netra - Early Warnings & Signals Through Charts