India's GDP growth in 2025 has exhibited remarkable resilience, expanding by 7.8% year-over-year in Q2, improving from 6.4% in the previous quarter. This acceleration surpasses the IMF's earlier projection of 6.2% for the year and reflects a broad-based recovery led by services and manufacturing. The services sector, including IT, financial services, and telecommunications, remains the primary engine, contributing approximately 54% to India's GDP. Manufacturing growth, supported by government initiatives such as 'Make in India' and production-linked incentives (PLI), has also gained traction, boosting exports and domestic demand.

However, growth is expected to moderate to around 6.5% in 2026 and 5.5% in 2027, reflecting global economic headwinds and domestic challenges such as rural distress and supply chain bottlenecks. Notably, MSMEs, which contribute nearly 30% of GDP and 45% of manufacturing output, remain a focus area for policy support to sustain growth momentum.

Investors should prioritize sectors benefiting from government reforms and global demand, such as technology, pharmaceuticals, and renewable energy. Diversification across growth-oriented midcaps and bluechips with strong balance sheets is advisable to manage volatility. Monitoring policy updates on GST reforms and trade agreements, especially the anticipated India-US trade deal, can provide tactical advantages.

Inflation in India during 2025 has moderated to around 5.3% year-on-year as of mid-year, aligning closely with the Reserve Bank of India's (RBI) target band of 4% ± 2%. Food inflation remains a key driver due to monsoon variability affecting agricultural output, while fuel prices have shown relative stability following global energy market adjustments.

The RBI has adopted a calibrated monetary policy stance, balancing inflation control with growth support. The repo rate currently stands at 6.5%, with the central bank signaling a cautious approach to future hikes amid global uncertainties and domestic demand fluctuations.

Inflation's impact on investments manifests through interest rate-sensitive sectors such as real estate, banking, and consumer discretionary. Rising inflation pressures can erode fixed income returns and increase input costs for corporates, impacting profitability.

Investment strategies to hedge inflation risks include: - Increasing allocations in equities with pricing power and export orientation - Considering inflation-indexed bonds and gold ETFs - Avoiding long-duration fixed income instruments prone to rate hikes

Investors should track RBI policy statements and inflation data releases closely to adjust portfolios proactively.

Employment in India in 2025 is witnessing a steady recovery with the unemployment rate estimated around 6.8%, down from pandemic highs but still elevated relative to pre-pandemic levels. The informal sector, which employs nearly 80% of the workforce, continues to face challenges from automation and structural shifts.

Government initiatives such as the National Employment Policy and Skill India Mission aim to enhance employability and formalize jobs, particularly in tier 2 and tier 3 cities. MSMEs remain crucial, accounting for 45% of total employment and contributing significantly to exports.

Employment growth is strongest in technology, healthcare, and e-commerce sectors, while traditional sectors face automation-driven job displacement. The rise of the gig economy and digital platforms is creating new employment avenues but also regulatory challenges.

Investment insights include: - Favoring companies with strong human capital management and digital transformation - Considering sectors benefiting from increased consumer spending and urbanization - Monitoring policy changes related to labour laws and social security

Risks entail potential wage inflation and skill mismatches that may impact corporate margins and productivity.