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After facing a series of shocks from tariffs, technology disruptions and rising oil prices, global stock markets now face the risk of a potential demand slowdown, according to a report by Nuvama Institutional Equities.
The report highlighted that FY26 has witnessed multiple historic shocks and raised concerns about whether a demand shock could be the next major risk for markets. "FY26 had a litany of historic shocks -- Tariffs, technology and now oil. Is demand shock next?" the report noted, adding that risks remain elevated as the US labour market shows signs of weakening, resembling recession-like conditions. It stated, "Risks loom large as US labour market is weakening (recession-like) and US private credit market (approx. USD2tn) -- the key 2020s lender--is facing liquidity issues". This could dampen global technology valuations and also impact capital expenditure on artificial intelligence, drawing parallels with the dot-com era. The report stated that policy support, such as quantitative easing by the US Federal Reserve and a resumption in oil supply, would be crucial for restoring market stability. Otherwise, markets may continue to witness heightened volatility. According to the report, a global risk-off environment could negatively impact Indian equities as well. It noted that around 35 per cent of the BSE500 index is facing micro-level challenges in sectors such as IT and FMCG, while nearly 40 per cent consists of expensive cyclicals like automobiles and industrials that are vulnerable to macroeconomic risks. Given the high valuations, the report recommended downgrading metals to underweight, stating that valuations are at a 20-year high and leave little room for error. The report also highlighted that the recovery in India during the second half of FY26 remains narrow. While sectors benefiting from GST cuts, such as automobiles and cement, have shown some recovery, other sectors, including real estate, steel and power, continue to remain sluggish. It added that earnings estimates remain elevated, with expectations of 19 per cent growth for the BSE500 in FY27, but these projections face risks from export volatility and rising oil prices. Despite stocks delivering flat returns over the past two years, the report noted that valuations remain expensive for most sectors. It also pointed out that some companies are operating at peak margins, making them more vulnerable to macroeconomic shocks. (ANI)
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