Eye on India | FY26 Q2

Earnings season is noisy, and most of the noise cancels. Reading dozens of transcripts in one sitting is our way of finding the bits that do not.

The September quarter had an unusually clear structure. One shock arrived from outside and hit exporters. One policy change arrived from inside and handed money to consumers. Most of what the calls described was companies working out which of the two mattered more to them.

Inflation collapsed to an eight-year low

Headline CPI fell to its lowest reading in eight years, and food did nearly all of it: food inflation was 1,157 basis points lower in September 2025 than a year earlier.

The RBI held while the Federal Reserve cut, which left Indian real rates at multi-year highs. Savers were being paid properly for the first time in years, and borrowers were paying for it. That shows up later in the credit data.

The tariff wall started to bite

The 50% punitive rate stopped being a headline and became a number in the export data. September shipments ran 37.5% below the May peak.

The share shift is the part worth watching. The United States took 19.8% of Indian exports in FY25 and 15.0% by September. That trade did not vanish; some of it moved, with the UAE’s share rising over the same period. But the gap widened the current account deficit and pressured the rupee, and a rising gold import bill made it worse.

GST 2.0 paid the consumer

The rate cuts were broad. Small cars, two-wheelers, buses and trucks went from 28% to 18%. Cement went the same way. Milk, paneer and staples went to zero. Biscuits, noodles, soaps and shampoos went from 12% to 5%.

The estimated consumer surplus is around $5.5bn, and the calls suggest it landed quickly. One insurance platform described 5 and 22 September as the two biggest demand days in the company’s history, on health and term alike. A large FMCG business said close to 66% of its portfolio benefited from the reduction.

The second-order effect is the one the managements kept returning to. At a 5% rate, the cost advantage that unorganised local players get from staying outside the tax net shrinks. Organised players expect to take share, which is a slower and more durable benefit than the demand pop.

Bharat came back

Rural FMCG volume grew 7.7% against urban’s 3.7%, a 400 basis point gap. Two-wheeler sales grew 7.4% while passenger car sales fell 1.5%.

That is a real divergence, not a rounding difference, and it reverses several years in which urban carried the consumer story. Sticky inflation and subdued wage growth had been squeezing the urban household. The rural one got the disinflation, the GST cut and better real wages at the same time.

Operating leverage arrives

The quick commerce businesses have spent three years being asked when the economics arrive. One of them answered with arithmetic this quarter: overheads grew 5% sequentially while gross order value grew about 25%.

What they said they would do with that gap was more interesting than the gap itself. Rather than bank the margin, management said it intends to keep passing efficiency back to the customer, on the view that scale economics shared beat scale economics hoarded.

AI as electricity

The most useful description of AI in the quarter came from a classifieds business, which called it electricity: not a product, but something that ends up inside every product because anything you do, you want to be more intelligent and less manually dependent.

That description holds up against the rest of the quarter. A payments company is selling small merchants an AI operating officer, finance officer and marketing officer on subscription. A beauty platform is pointing at Gen Z, 26% of India’s population and close to half its consumption, as the group whose shopping habits are forming around AI first.

What we took away

Disinflation, a tax cut and a rural recovery on one side. A tariff wall, a widening deficit and a weaker rupee on the other. The domestic consumer was being handed money at exactly the moment the external account needed help, and those two forces do not resolve in the same direction.

At Meritus we think of investing as both craft and partnership. We have benefited enormously from the community around us, and sharing what we learn is one small way of paying that forward. Thanks to Viraj Yadav for helping put the issue together.

Onward.

Read the full issue – 93 pages, across macro, platforms, consumer, financials, industrials, services and healthcare.