India's domestic demand is set for a turnaround with strong signs of revival in consumption, which is expected to accelerate the private investment cycle from the third quarter of FY26, according to Motilal Oswal Financial Services' latest EcoScope report titled“Consumption First; Private Capex Next?” The report noted that the Reserve Bank of India's recent monetary easing, coupled with fiscal stimulus and regulatory reforms, has created conditions for a "robust revival in the private capex cycle." It added,“We expect domestic consumption to pick up significantly in 3QFY26, paving the way for a robust revival in the private capex cycle.”

Over the past few months, India has faced "multiple headwinds, primarily driven by geopolitics and wars," leading to foreign institutional outflows of USD 9 billion between July and September 2025. To support growth, the RBI "cut policy rates by 100bp to 5.5 per cent, reduced the CRR rate by 150bp," and infused about Rs 9 trillion liquidity through various operations. The government also "frontloaded capex spending and reduced income and GST tax rates," measures that have started showing results with auto sales surging 34 per cent in September 2025.

Motilal Oswal report says these developments mark "the beginning of a turnaround in India's domestic growth momentum." It highlighted that private capital expenditure typically "complements consumption, albeit with a lag of two quarters," suggesting that investment activity will gain pace in the second half of FY26 as demand strengthens.

"The RBI has raised its FY26 GDP forecast to 6.8% from 6.5% in its October policy. We believe FY26 GDP could reach 7% if US tariff rates are reduced to at least 25% from the current 50% by November," noted the report

The report pointed out that sectors such as "Power T & D, Coal, Telecom, Oil & Gas, Ports, Cement, Airlines, Defense, and Electronics are already expanding capacities," driven by structural rather than cyclical factors. India's current capex-to-GDP ratio stands at around 30 per cent, below the peak of 35 per cent during 2004-2008, leaving room for improvement.

Data from the study show that two sectors, Power and Utilitie,s contribute nearly 50 per cent of India's private capex. In FY26, capex by NSE 500 companies is expected to rise 11.6 per cent year-on-year to Rs 8 trillion. Core sectors with structural drivers like power and oil & gas are expected to grow at 23 per cent.

Interestingly, the report noted that this phase of growth "is NOT funded by banking credit" but by "external funding, IPOs, QIPs, and more importantly, corporate debt." Corporate debt issuance has exceeded repayments for the first time in a decade, signalling a healthy appetite for private investment.

With "RBI's October policy easing regulatory measures for banks and NBFCs," the report expects credit flows to accelerate further, reinforcing the momentum for a sustained private investment recovery.

"Private capex activity," the report concluded,“is likely to emerge as the next engine of growth once consumption gathers pace.”

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