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India's growth momentum could come under pressure in the second half of FY27 as demand-related risks begin to outweigh the cyclical tailwinds that supported the economy earlier, according to a Nuvama report.
The report said the impact of GST cuts is likely to fade, while the possibility of an El Nino, slowing top-line growth as the effects of higher commodity prices and rupee depreciation become part of the base, and weak income and credit multipliers could weigh on demand. "The impact of GST cuts will fade. El Nino poses risks to demand outlook... Commodity prices, which started to rally from September 2025, and the tailwinds of INR depreciation should now be a part of the base. Unless there is a fresh rally in either, top-line growth would taper off," the report said. Nuvama said recent trends in the Indian economy also point to a softer growth environment. While bank credit has accelerated sharply over the past year, broader economic activity has remained relatively weak because aggregate credit growth has been slower and a part of the rise in industrial lending reflects higher working capital requirements rather than fresh capital expenditure. The report also noted that consumption has yet to see a broad-based revival. Despite income tax relief, GST rationalisation, welfare spending, and stronger household lending, consumption has improved only marginally over the past three quarters, indicating that weak income growth continues to weigh on consumer spending. It also observed that government capital expenditure has slowed, with states increasingly prioritising revenue spending over capex. Despite these challenges, Nuvama said India remains relatively attractive compared with other emerging markets as valuations have moderated and recent RBI measures to support the rupee could improve liquidity and foreign investor sentiment. On the market outlook, the report said domestic institutional investors continue to provide support even as foreign institutional investors have remained net sellers over the past two years. However, with demand risks expected to become more prominent, it recommended a defensive investment strategy, favouring sectors such as IT, consumer, private banks, cement and chemicals over cyclical sectors including industrials, metals, power and automobiles. (ANI)
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