Economic Outlook & Macro Trends
Following the strong performance in festive-boosted Q3 FY2026, the year-on-year (YoY) growth in economic activity, as measured by the ICRA Business Activity Monitor - an Index of high frequency indicators, eased to a three-month low of 8.5% in January 2026. The sequential slowdown in growth from the double-digit expansion of 10.6% in December 2025 was partly impacted by an unfavourable base (December 2024/January 2025: +7.9%/+10.6%) as well as some dip in the momentum of some sectors post the festive period. As many as 12 of the 16 constituent indicators reported a weaker YoY expansion in January 2026 vis-à-vis December 2025, including automobile output, and indicators pertaining to trade, construction and transport/mobility. With an easing in the core output growth to 4.0% in January 2026 from 4.7% in December 2025, ICRA expects the Index of Industrial Production (IIP) growth to ease to ~5.5% from 7.8%, respectively. Thereafter, the early trends for February 2026 are favourable, with improvement in the YoY growth in vehicle sales and electricity demand, compared to January 2026.
- Growth in ICRA Business Activity Monitor eased to three-month low in January 2026: The YoY growth in the index slowed to 8.5% in January 2026 from 10.6% in the previous month, partly owing to an unfavourable base (December 2024/January 2025: +7.9%/+10.6%). This easing was broad based, with as many as 12 of the 16 constituent indicators reporting a deceleration between these months, including PV and 2W output (even as the latter remained in double digits), mining output and electricity generation, non-oil exports (decline after a gap of 2 months), ports cargo traffic, GST e-way bills (albeit remaining in double digits), auto fuel consumption and construction related indicators (cement output and finished steel consumption).
- Core output growth weakened in January 2026: The YoY growth in core output eased to 4.0% in January 2026 from 4.7% in December 2025, amid a broad-based slowdown in seven of the eight sub-sectors. Given the trends in core output, IIP growth is likely to slow down in January 2026, although we expect the growth in the “non-core” part of the IIP to continue to outperform the core industries output, in line with the trends seen in Q3 FY2026. As a result, ICRA expects IIP growth to ease to ~5.5% in January 2026 from 7.8% in December 2025, while printing higher than the growth in core output in the month.
EXHIBIT: Level of ICRA Business Activity Monitor (FY2019=100)
