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Rising geopolitical tensions and a sharp increase in crude oil prices are clouding India's near-term growth outlook, even as strong domestic fundamentals continue to support the long-term story, according to a report by PL Capital.
The report said that "the current growth path of India is entering a challenging phase due to increasing geopolitical tensions, growing cost of crude oil, and disruptions in the global supply chain," adding that while core growth drivers remain intact, "earning projections are being lowered." It highlighted that benchmark indices have seen volatility in recent months, noting that "the Nifty has fallen by 6.6% over the last three months due to continued foreign institutional investor (FII) redemptions against the backdrop of geopolitical instability." Despite this, the medium-term outlook remains stable. The report said "the medium-term forecast suggests a compounded annual growth rate (CAGR) of 15% over fiscal years 26-28," while earnings visibility has "improved marginally, with an expected 4% growth in Nifty EPS for fiscal year 2026." On macro risks, PL Capital warned that high oil prices could significantly impact inflation and growth. "India, which imports 4.3 million barrels of crude per day... could see its import bill rise by over USD 70 billion annually," it said, adding that second-order effects are likely "to weigh on inflation, demand, and manufacturing in the coming months." The report also flagged weather-related risks, stating that "the likelihood of an El Nino... with rainfall expected to be below normal... raises concerns around kharif output, reservoir levels, food inflation, and rural demand." At the same time, domestic factors continue to provide support. "Domestic demand continues to hold steady, backed by the resilience of the rural sector and improving urban demand," it said, while capital expenditure in sectors like defence, renewables and infrastructure is expected to remain a key growth driver. PL Capital's Co-Head Institutional Equities, Amnish Aggarwal, said, "Geopolitical tensions along with the sharp increase in oil prices have made the global macroeconomic environment highly uncertain... near-term challenges related to inflation, interest rate concerns, and foreign demand are likely to impact economic growth." He added that "favourable domestic factors like increased investments in infrastructure... and stability in the banking system are likely to underpin sustainable growth." The report maintained that while India's long-term growth story remains intact, "there are certain risks in the short term that need to be watched out for," including geopolitical tensions, inflation, and global economic slowdown. (ANI)
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