What will define the next phase of India’s growth story?

As we step into 2026, India enters the new year with an economic and strategic momentum that continues to set it apart from many major economies. Despite global geo-political uncertainties, a number of the forces that shaped 2025 - resilient macro fundamentals, rising global relevance, a maturing digital economy, and a decisive shift in global supply chains - have not only held firm but strengthened. For global investors evaluating where to deploy capital in the year ahead, India stands out not just for its performance, but for the structural drivers behind it.

India’s economic resilience was one of the standout themes of 2025. That strength carried decisively into FY25–26, with real GDP expanding by 8.2 per cent in the July–September quarter, reinforcing India’s position as one of the fastest‑growing major economies. Looking ahead, FY26 GDP growth is forecast to remain firmly in the 6.5–6.9 per cent range, a level of consistency that sharply contrasts with the stagnation or contraction seen across other markets.

Following the Union Budget announcement on 01 February 2026 (“Budget”), policy signals remain consistent: higher public capex, liberalisation that favours long‑term FDI, targeted incentives for priority sectors (electronics, biopharma, renewables) and tax process simplification that seeks to lower friction for multinational operators. The question for 2026 is no longer whether India can sustain growth. It is how investors position themselves to participate in the transformation taking place.

Trade developments are also shaping India’s 2026 outlook. The UK-India Free Trade Agreement, concluded in May 2025, is expected to double bilateral trade to USD120bn by 2030 and provides UK businesses with expanded access to public procurement and government contracts. More recently, the signing of the EU-India FTA in January 2026 has created one of the world’s largest liberalised trade corridors, linking India with the EU’s single market and is India’s largest FTA so far. Both agreements are designed to strengthen supply‑chain resilience, broaden market access for Indian exporters and encourage European and UK firms to diversify manufacturing and sourcing into India. These trade frameworks support a more predictable regulatory environment and are likely to catalyse cross‑border investment, strategic partnerships and footprint expansion in sectors such as automotive, pharmaceuticals, clean energy and defence. In parallel, the Budget’s measures - ranging from continued public capex growth to customs and IT‑services safe harbours - reinforce these trade frameworks by seeking to improve execution certainty, logistics efficiency and capital deployment pathways.

M&A Outlook 2026: What 2025 Signalled About the Year Ahead

India’s M&A activity held broadly steady in 2025, with deal volumes remaining comparable to the prior year while overall transaction value increased to $105bn, surpassing 2024 levels. The combination of stable activity and larger deal sizes points to a market characterised by more strategic, higher‑value transactions, a pattern that supports a positive outlook for 2026.

While a range of dynamics will influence India’s M&A market in 2026, three trends from 2025 offer especially clear signals:

1. Cross‑border M&A is on the rise

Cross-border deals accounted for 60 per cent of total India deal value in 2025, up from 28 per cent the previous year, driven in part by a spike in transactions above $1bn.

This shift positions 2026 for continued momentum.

• Inbound investors are increasingly focused on financial services, renewables & energy, technology, manufacturing and the industrials sector more generally.
• Outbound activity has increased, with the US, Singapore and the UK dominating flows.

Meanwhile, France, the UAE and Japan moved rapidly up the inbound rankings by value due to several high‑value strategic acquisitions.

This rise in cross‑border activity was also reflected in the publicly announced deals. On the outbound side, Tata Motors’ subsidiary TML CV Holdings agreed to acquire Italy’s Iveco Group in a transaction valued at approximately $4.5bn - the largest deal undertaken by the company to date. Inbound activity was similarly marked by scale, with Schneider Electric agreeing to acquire the remaining 35 per cent stake in Schneider Electric India from Temasek for roughly $6.4bn, giving the company full ownership of its Indian operations and further consolidating its regional strategy. Sumitomo Mitsui Banking Corporation acquired a 20 per cent stake in India’s Yes Bank Ltd, valued at approximately $1.58bn and Mizuho Financial Group acquired Avendus Capital at approximately $700m, deepening its footprint in India’s investment banking and wealth management industry.

2. Industrial sector reconfiguration will continue to shape the deal landscape

For the first time in over five years, the industrials sector overtook technology in terms of deal volume, but ceded the top spot by value to the Financials sector, driven by a number of multi‑billion‑dollar transactions announced in Q4 2025.

Supply‑chain realignment, PLI scheme incentives and domestic manufacturing resilience will keep the industrials sector a core M&A hotspot throughout 2026.

The consumer sector remains domestically led, with over 70 per cent of deals involving Indian buyers. Compared with the broader market, this highlights both strong local competition and untapped scope for international investors, reflecting rising consumer spending and the growing and aspirational middle class.

The scale and strategic nature of industrial-sector activity was further underscored by Adani Ports and Special Economic Zone (APSEZ)’s acquisition of Abbot Point Port Holdings, the Singapore-based owner of the North Queensland Export Terminal in Australia. Valued at approximately AUD3.975bn (around USD2.4–2.5bn), the transaction marks a significant outbound move for APSEZ and reflects a broader trend of Indian corporates positioning themselves closer to critical upstream supply chains. This is a notable example of vertical integration shaping India’s industrial strategy, and highlights why the sector is expected to remain an active area for cross‑border M&A in 2026.

3. Private equity enters 2026 with momentum and maturity

Private equity held steady at ~25 per cent of India’s deal volume and value in 2025. Sponsor-backed activity was strong in financial services, technology, and healthcare. Retail saw particularly active sponsor participation, with over 80 per cent of all deals in the retail sector involving PE on any side of the deal.

Recent activity also highlights the scale at which global private capital is now deploying into India’s energy transition. Capital Edge, a Kuwait‑based investment firm, committed USD1bn to NexGen Energia, a Noida‑based clean‑energy company. The deal reflects two important dynamics ahead of 2026: renewable energy has matured into a bankable infrastructure asset class for international investors, and India is among the few markets capable of absorbing transactions of this scale, enabling large funds to deploy capital efficiently into long‑term, growth‑aligned platforms.

With substantial dry powder and maturing vintages from 2019–2021, private equity investors will likely play an important role in 2026 across buyouts, secondary transactions and large minority deals.

Tariff developments are also influencing India’s dealmaking environment heading into 2026. Higher US tariffs have put pressure on several export‑oriented sectors, such as textiles, gems and jewellery, and light manufacturing, creating pockets of financial stress that may translate into selective distressed or consolidation driven M&A. At the same time, the tariff backdrop is accelerating “China‑plus‑one” diversification, reinforcing India’s positioning for inbound investment in manufacturing, clean energy and strategic technologies. As India broadens its trade relationships, the shift in global supply chains is likely to support new cross‑border partnerships and targeted acquisitions. Budget steps on customs rationalisation, SEZ‑to‑DTA sales at concessional rates and single‑window cargo approvals may partially offset external tariff uncertainty for supply‑chain‑intensive acquirors.

Key Sectors to Watch in 2026

India’s policy environment is also reinforcing sector‑level momentum heading into 2026. The country’s liberalised FDI regime - which permits up to 100 per cent foreign investment under the automatic route in most sectors, including renewables and, in defined cases, defence and insurance - continues to broaden access for global investors. Large‑scale programmes such as the National Infrastructure Pipeline, outlining more than USD1.4trn of planned investment across energy, transport and urban development, further expand opportunities for private and foreign capital through PPPs. Alongside this, the Production Linked Incentive schemes remain a central tool for strengthening domestic manufacturing capacity and reducing import dependency across strategic sectors.

This policy backdrop, combined with 2025 capital‑flow patterns, frames the sectors expected to see the most activity in 2026:

• Infrastructure : Government capex continues to rise year‑on‑year, with ongoing investment in transport, logistics, industrial parks and data centres – increasingly alongside foreign strategic partners. The Budget lifts public capex again and prioritises corridors, waterways and high‑speed rail, expanding PPP opportunities and investable project pipelines.
• Technology: India’s digital economy is expanding at almost twice the pace of the broader economy and could contribute nearly 20 per cent of GDP by 2029-30. The country remains a global leader in STEM talent and ranks second only to the US for AI skill penetration. With a fintech market projected to reach $990bn by 2032, and strong demand for global capability centres, 2026 is expected to see continued momentum in AI, fintech, cybersecurity, SaaS and next‑generation digital infrastructure.
• Renewable energy: India’s energy transition remains one of the most attractive investment sectors. With over 250 GW of installed renewable capacity - the fourth largest globally - and over $300bn of investment required by 2032, the sector will continue attracting significant inbound capital. Green hydrogen, solar and grid modernisation initiatives will be central to India’s 2026 energy security and decarbonisation strategy. The Budget included customs exemptions for critical inputs (e.g. solar glass components, Li‑ion cell capex) and streamlined clearances support project viability and strengthen cost predictability across assets and supply chains.
• Manufacturing: Manufacturing’s rise is underpinned by India’s competitive labour market, a growing domestic consumer base and the Production Linked Incentive (PLI) scheme, whose allocation for electronics was doubled in the latest Budget. Japanese corporates have already made sizeable commitments to Indian manufacturing capabilities, and export‑oriented production is on track to support India’s ambition of $1trn in manufacturing exports by 2030. In 2026, automotive, electronics, pharmaceuticals and defence manufacturing will remain core focal points for both strategic and financial investors.
• Automotive & Electric vehicles (EVs): The auto sector entered 2026 from a position of strength, with record performance across most categories in late 2025 following GST adaptations. The standout story remains electrification: EV retail sales surged over 16 per cent year‑on‑year, driven by a 77 per cent jump in electric passenger car sales. Ongoing policy incentives position the EV ecosystem as a growth corridor.

Overall, the Budget pairs continued fiscal consolidation with targeted incentives and process simplification which are useful markers for deal teams assessing regulatory certainty and post‑close execution.

2026 and Beyond: What Global Investors Should Expect

India’s growth trajectory shows no signs of slowing. GDP is expected to rise 6.5-6.9 per cent in FY26 and reach an 8-10 per cent share of global GDP by 2040.

What will define the next phase?

• Consistent and strong economic growth
• A young, digitally empowered workforce
• A rapidly expanding and aspirational middle class
• Integration into global supply chains
• Leadership in digital services and advanced technologies
• A broadening set of domestic and cross‑border investment opportunities

Challenges remain, particularly around geopolitical uncertainty, tariff environments and global capital market volatility, but India’s fundamentals offer a strong buffer.

For international investors, 2026 is expected to bring continued opportunity as India strengthens its position in global capital flows. The market is increasingly viewed as a core geography for long‑term allocation rather than a peripheral emerging‑market exposure - underpinned by the Budget’s emphasis on capex, sectoral incentives and compliance simplification.

This material is for general information purposes only and is not intended to constitute legal or other advice. Regulation prohibits foreign law firms from practising Indian law. The contents of this publication do not constitute any opinion or determination of Indian law by us. Any comments in this publication are based on our experience as international counsel representing our clients in their cross-border deals and disputes which may have a connection with India. Freshfields does not practise or advise on Indian law and where Indian law advice is needed, we work alongside leading Indian counsel.