China, weak monsoon, AI boom: 10 trends investors should watch in H2 2026

Retail inflation has climbed above the Reserve Bank of India’s (RBI’s) 4 per cent target after 17 months, China is growing at its slowest pace since the pandemic, and India’s data centre ecosystem is projected to create a $90-billion opportunity by FY35. Together, these are among the 10 macro and sectoral trends that could shape investment opportunities in the second half of 2026, according to a report by Abakkus Mutual Fund.

The report suggests investors may need to prepare for a market where sector selection becomes more important than broad-based rallies, with themes such as digital infrastructure, manufacturing and domestic consumption expected to remain in focus.

Inflation returns to the spotlight

Retail inflation accelerated to 4.38 per cent in June, breaching the RBI’s medium-term target for the first time in 17 months, largely due to higher food and fuel prices.

For investors, persistently high inflation could delay expectations of further interest rate cuts and weigh on interest rate-sensitive sectors.

Weak monsoon could keep food prices elevated

India had an 18 per cent cumulative rainfall deficit as of July 12, with 15 states recording rainfall shortages exceeding 20 per cent.

If rainfall remains uneven, food inflation could stay elevated, affecting both consumers and sectors dependent on rural demand.

India remains a global growth outperformer

While China’s GDP growth slowed to 4.3 per cent in the June quarter, its weakest since the pandemic, India is expected to remain among the world’s fastest-growing major economies despite global uncertainties.

Data centres emerge as a structural theme

One of the biggest long-term investment themes highlighted in the report is digital infrastructure.

India’s data centre construction value chain is expected to become a $90-billion opportunity by FY35, driven by artificial intelligence, cloud computing and rising data consumption.

The opportunity extends beyond data centre operators to engineering, construction, electrical equipment, cooling systems, power infrastructure and networking companies.

China dependence remains a risk for pharma

The report notes that India continues to rely heavily on China for imports of key pharmaceutical ingredients despite government efforts to improve domestic manufacturing.

Any supply disruption or geopolitical tension could affect input costs for drug manufacturers.

EV market consolidation gathers pace

India’s electric two-wheeler market is becoming increasingly concentrated.

TVS Motor, Bajaj Auto, Hero MotoCorp and Ather Energy accounted for most of the incremental registrations during the first half of 2026, indicating that scale is becoming increasingly important in the sector.

Fertiliser costs remain under pressure

Sulphur prices have surged amid continued geopolitical tensions in West Asia, increasing input costs for fertiliser manufacturers and potentially affecting agricultural economics.

What should investors do?

The report points to a market where macroeconomic trends and sector-specific developments are likely to matter more than broad market momentum. Investors may want to focus on businesses with strong earnings visibility, particularly those linked to India’s domestic growth story, digital infrastructure and manufacturing, while remaining cautious about sectors vulnerable to inflation, commodity prices and global supply-chain disruptions

Key Takeaways

Inflation above RBI’s comfort zone: Rising food and fuel prices could keep inflation elevated and reduce the likelihood of further interest rate cuts in the near term.

Weak monsoon progress: An 18% rainfall deficit raises concerns over agricultural output, rural consumption and food inflation.

China’s economic slowdown: Slower growth in China could reshape global supply chains and create opportunities for India in select manufacturing and export sectors.

India’s resilient GDP outlook: India is expected to remain one of the fastest-growing major economies, supported by strong domestic demand despite global headwinds.

Continued API dependence on China: India’s pharmaceutical sector remains reliant on Chinese imports for key active pharmaceutical ingredients, highlighting the need for supply chain diversification.

Data centre boom: India’s data centre ecosystem is projected to become a $90-billion opportunity by FY35, benefiting infrastructure, engineering, power equipment and technology companies.

Generic semaglutide demand moderates: After an initial surge, demand has plateaued, suggesting more measured and sustainable growth in the obesity drug market.

EV two-wheeler market consolidates: A handful of established players are capturing a growing share of the market, indicating increasing industry consolidation.