Nuvama warns India’s growth momentum may falter as external risks deepen

Despite strong quarterly profits and economic expansion, Nuvama cautions that rising oil costs, global AI investment cooling, and demand weaknesses threaten the sustainability of India’s recent recovery, prompting a more defensive investment stance.

Nuvama’s warning on India is less about whether the economy recovered in the April-June 2026 quarter than about how long that recovery can last. After India Inc posted its strongest quarterly profit growth in three years and the economy expanded by 7.8 per cent, the brokerage argues that the July-September 2026 quarter could mark the start of a tougher phase, with higher oil costs and any cooling in global artificial intelligence investment threatening margins that were flattered in the first quarter by operating leverage and cheaper inventory. (ndtvprofit.com)

That scepticism rests on the narrowness of the rebound. The Economic Times reported that Nuvama estimates corporate top-line growth at about 20 per cent year on year and aggregate credit growth at roughly 15 per cent, helped by GST cuts, monetary easing and the global commodity and AI capital-expenditure boom. But the same note said imported GST has been stronger than domestic GST, pointing to weak underlying demand at home, while listed property developers’ pre-sales have slipped into contraction on a trend basis for the first time since the Covid period. (economictimes.indiatimes.com)

Financial Express said Nuvama has therefore shifted to a more defensive stance, arguing that the main risk to earnings is moving from supply shocks to demand weakness. The brokerage said household incomes remain soft, wage growth subdued and rural spending could come under pressure if El Niño disrupts the monsoon. It also argued that the rebound in the second half of FY26 was not strong enough to justify current FY27 hopes, especially with company cash flows weakening, working-capital strain rising and government finances under pressure from softer tax receipts and a larger subsidy bill. (financialexpress.com)

Even where investment is improving, the picture is uneven. Business Standard reported that new private-sector project announcements jumped more than 70 per cent in Q1FY27 to ₹13.1 trillion, helping total announcements reach ₹14.5 trillion, but the surge was dominated by power. Government capex announcements, by contrast, more than halved to ₹1.4 trillion. The newspaper also highlighted Nuvama’s view that transmission and distribution are benefiting from India’s plan to integrate 900GW of non-fossil fuel capacity by 2035-36, implying roughly ₹7.93 trillion of transmission spending, yet capex outside power remains far less convincing. (business-standard.com)

Nuvama’s international concern is that India is exposed to a global wobble without being a full beneficiary of the boom that preceded it. Moneycontrol reported in March that the brokerage saw a chain of risks running through tariffs, technology and oil, with the US labour market softening and the roughly $2 trillion American private-credit market facing liquidity strains tied to leveraged software exposure. Nuvama said the AI cycle resembled the internet era, with rich valuations and rapid adoption leaving markets vulnerable if growth slows or liquidity tightens. It added that about 35 per cent of the BSE500 faces company-specific challenges, while another 40 per cent sits in expensive cyclical sectors. (moneycontrol.com)

That top-down caution is now feeding directly into stock calls. After the June-quarter earnings season, NDTV Profit reported that Nuvama revised ratings on nearly 30 stocks even as aggregate profit for BSE500 companies excluding oil marketers rose 22 per cent and revenue growth hit 19 per cent. Small- and mid-cap companies beat large caps for a fourth straight quarter, with profits up 28 per cent against 21 per cent for larger peers, largely because margins recovered to an all-time high. Yet Nuvama called current FY27 expectations “a tall ask”, noting that market capitalisation stands at 134 per cent of GDP against a long-run average near 92 per cent, while the Nifty trades on 18 times one-year forward earnings. Financial Express said the firm is overweight consumer shares, IT, private banks, pharma, cement and chemicals, and underweight industrials, metals, autos and power, with ICICI Bank, Sun Pharma and Tech Mahindra among its preferred names. (ndtvprofit.com)

There is, however, a competing reading of the same economy. Reuters reported on 1 September that India’s 7.8 per cent April-June growth reflected a broader private-investment revival, with overall investment up 11.9 per cent and gross fixed capital formation rising to 34.3 per cent of GDP from 31.4 per cent a year earlier. Bank credit was growing at more than 19 per cent at the end of July, with industry credit up 20 per cent, while Google and Amazon have announced plans to invest more than $40 billion in Indian data centres over five years. Business Standard nonetheless cautioned that order conversion is gradual and still concentrated in select sectors, while Informist quoted Nuvama as saying that any post-shock earnings recovery in smaller companies is likely to be muted because there is no 2020-style policy stimulus and no pent-up demand to do the heavy lifting. (investing.com)

The argument, then, is not over whether India has momentum, but over whether the latest burst is broad enough to survive two tests at once: expensive oil and a softer global AI spending cycle. Moneycontrol said Nuvama sees Federal Reserve liquidity support and a recovery in oil supply as the key stabilisers if volatility is to ease. Until then, the brokerage expects caution to dominate, especially in smaller companies whose valuations, Informist reported, remain a standard deviation above normal. As Nuvama put it: “Expect SMIDs (small-and mid-cap stocks) to be range bound until fresh stimulus arrives or valuations turn cheap.” (moneycontrol.com)