HEG Ltd Management Discussions

Global Economy

Overview

The global economy in 2025 was expected to stabilise into a disinflation-led recovery. Instead, it evolved into a transition year marked by an interrupted normalisation, in which improving macro fundamentals were increasingly offset by geopolitical shocks, energy volatility, and structural fragmentation. According to the IMFs January 2026 World Economic Outlook Update, global growth momentum entering 2025 remained steady, supported by easing inflation and resilient demand. However, the trajectory shifted over the year, culminating in a more cautious outlook in the April 2026 WEO, in which the global economy is described as operating under the "shadow of war" amid elevated uncertainty.

Growth: Resilient but Resetting Lower

Global GDP growth for 2025 is estimated at around 3.4%, reflecting a modest but stable expansion, albeit below long-term averages. This momentum, however, proved difficult to sustain. By April 2026, the IMF revised forward growth expectations downward, projecting 3.1% growth for 2026, indicating that the global economy is settling into a structurally slower growth regime. The key takeaway from 2025 is not a collapse in growth, but a reset in global growth expectations, driven by:

y Weakening industrial momentum y Tightening financial conditions y Rising geopolitical disruptions

Infiation

Global inflation eased to around 4.1% in 2025, reflecting the impact of monetary tightening and improved supply conditions, as noted in the IMFs January 2026 Update. However, this disinflation trend has weakened. The IMFs April 2026 World Economic Outlook now projects inflation to rise to ~4.4% in 2026, signalling a reversal in the earlier downward trajectory.

The nature of inflation is also shifting. Rather than demand-led pressures, it is increasingly driven by supply-side shocks—particularly energy volatility, commodity disruptions, and rising logistics and input costs. This is creating a more complex environment where inflation and slower growth are occurring simultaneously.

The impact is uneven across regions, with emerging economies facing greater pressure due to currency weakness, higher import dependence, and limited policy flexibility.

Trade and Supply Chains: The Cost of Fragmentation

The global trade environment in 2025 continued to move away from efficiency-driven globalisation toward resilience-led regionalisation. The IMF highlights rising risks from geopolitical fragmentation, trade barriers, and supply chain realignments, all of which are increasing system-wide costs and reducing efficiency. For industrial sectors, this has translated into:

y Higher logistics and sourcing costs y Duplication of supply networks y Increased working capital intensity This evolving structure has effectively introduced a "fragmentation premium" into global production systems.

Energy: The Central Transmission Channel

Energy markets emerged as the defining macroeconomic variable through 2025. Supply disruptions and geopolitical tensions led to renewed volatility in oil, gas, and power prices, directly influencing inflation, trade balances, and industrial cost structures. The IMF notes that rising commodity prices and tighter financial conditions are key transmission channels through which global shocks are impacting growth and inflation simultaneously. For energy-intensive industries such as graphite electrodes, this dynamic has dual implications:

y elevated input cost volatility y indirect impact on downstream steel demand

Divergence Across Economies

The global recovery in 2025 remained asynchronous and uneven:

y Advanced economies experienced subdued growth due to restrictive monetary policy and weaker industrial output y Emerging markets retained relatively strong momentum but faced rising vulnerability to capital-flow volatility, currency volatility, and energy import costs. The April 2026 WEO further emphasises that emerging and developing economies are disproportionately exposed to downside risks, particularly from commodity shocks and tighter financial conditions.

Outlook: Stability with Elevated Downside Risks

The global economic outlook emerging from 2025 is best characterised as stable but fragile.

While baseline projections suggest moderate growth continuity, risks remain firmly skewed to the downside, including:

y escalation of geopolitical conflicts y prolonged energy price shocks y deepening trade fragmentation y financial market volatility The IMF explicitly notes that the global economy is now operating amid heightened uncertainty, with multiple adverse scenarios that could materially weaken growth outcomes.

Indian Economy

Overview

In FY2025-26, Indias economy stood out as a pillar of stability amid an increasingly uncertain global landscape, driven less a by external tailwinds than by structural domestic resilience. At a time when global growth moderated and trade flows became fragmented, Indias growth model demonstrated a decisive shift toward internal demand, infrastructure-led expansion, and policy-backed capital formation.

In Indias economic momentum remained robust in FY2025-26, with real GDP growth estimated at ~7.4% as per the First Advance Estimates. This level of expansion reflects strong underlying domestic drivers, particularly investment activity and resilient consumption, and positions India well above prevailing global growth levels, even as the broader world economy adjusted to a more moderate and uneven growth environment.

Growth Quality: Investment-Led, Not Consumption-Led Alone

A defining feature of FY2025-26 was the improving quality of growth, with a stronger contribution from investment a and manufacturing alongside consumption:

y Public capital expenditure continued to anchor growth, particularly y in infrastructure, railways, roads, and energy y y Urban demand remained resilient, y supported by income growth and tax rationalisation y Rural recovery gained traction, aided by improved agricultural output and stable commodity cycles Unlike earlier cycles, growth was not purely consumption-driven but reflected a more balanced, investment-oriented expansion that strengthened the economys medium-term productive capacity.

Indias Position in the Global Economy: Scale vs Momentum

In nominal terms, Indias GDP reached approximately USD 4.15 trillion in 2026 (IMF April 2026 WEO).

However, currency movements and global revisions have led to India being ranked the sixth-largest economy, highlighting a key distinction: Indias growth momentum remains strong, but currency dynamics and external factors increasingly influence its global ranking. This reinforces that Indias economic story is less about short-term ranking shifts and more about sustained real growth and scale expansion.

Infiation and Macro Stability: Controlled but Exposed

Macroeconomic stability remained a key strength through FY2025-26. Inflation trends were relatively contained compared to global levels, supported by:

y proactive monetary policy y supply-side interventions y stable food price dynamics At the same time, Indias structural exposure to imported energy inflation remained a critical vulnerability. As a major crude importer, the economy is sensitive to global oil price movements, which have begun to reintroduce inflationary pressures and external imbalances toward the latter part of the period.

External Sector: Resilient but Rebalancing

Indias external sector in FY2025-26 reflected measured resilience amid global trade disruptions:

y Services, exports and remittances continued to provide stability y Merchandise exports faced headwinds from weak global demand and trade barriers y Import pressures persisted, particularly from energy and capital goods This resulted in a manageable but structurally persistent current account pressure, reinforcing the importance of domestic demand as the primary growth engine.

Industrial and Infrastructure Momentum

FY2025-26 saw continued momentum in infrastructure and industrial activity, supported by government-led investments and policy initiatives, including PLI schemes and logistics reforms.

For core sectors linked to HEGs business ecosystem:

y Steel demand remained supported by infrastructure, construction, and capital goods y Power demand continued to rise, reflecting industrial expansion and electrification trends This created a supportive, though not uniformly strong, demand environment for energy-intensive industrial value chains.

Outlook: Strong Foundations, Emerging Constraints

Looking ahead, the IMF projects Indias growth to moderate to around 6.5% in FY2026-27, reflecting base effects and emerging global headwinds.

A combination of strengths and constraints shapes the near-term outlook:

Structural Strengths

y strong domestic demand base y sustained public investment y improving the manufacturing ecosystem

Emerging Risks

y energy price volatility y global trade fragmentation y capital flow sensitivity y currency fluctuations