Iran oil shock, weak monsoon raises stagflation risk for India, warns Nuvama
New Delhi, June 6
Rising geopolitical tensions and a potential supply shock stemming from the Iran crisis could increase the risk of stagflation in India, Nuvama Institutional Equities said in a GDP analysis report, even as the country's economy closed FY26 with stronger-than-expected growth.
The brokerage warned that FY27 could be more challenging despite healthy economic activity in the March quarter.
"FY27 is likely to be a challenging year, beginning with heightened geopolitical tensions that could keep input costs elevated and weigh on real income," the report said.
Highlighting the key risk to the economy, Nuvama said, "With the economy already in an inflationary phase, a prolonged supply shock - particularly alongside a weak monsoon - raises the risk of a stagflationary environment."
Stagflation refers to a situation where economic growth slows while inflation remains elevated.
The warning comes after India's real GDP growth stood at 7.8 per cent in the fourth quarter of FY26, while full-year growth accelerated to 7.7 per cent from 7.1 per cent in FY25.
According to the report, "Economic activity was largely stable in Q4FY26. Real GDP growth was healthy at 7.8% YoY, while NGDP growth was subdued at 9.1%."
However, the brokerage cautioned that emerging global risks could weigh on the growth outlook going forward.
Reflecting these concerns, Nuvama said, "We revise downward our FY27 RGDP growth forecast to 6-6.5% YoY, but expect NGDP to accelerate to 11-12%."
The report attributed the revision to the impact of higher oil prices linked to the Iran crisis.
"The revisions are owing to the oil shock amid the Iran crisis," it said.
Nuvama noted that elevated input costs could put pressure on households and businesses, even as inflation boosts nominal growth.
At the same time, the brokerage said several domestic factors could help limit the downside risks. "RBI's deft liquidity management, a relatively undervalued INR and healthy credit growth should help cushion the downside," the report said.
Reviewing the FY26 performance, the report described economic activity as stable, with investment strengthening during the March quarter. It noted that "investment (GFCF) picked up sharply to 10.8% (Q3: 8.2%)," even as private consumption growth moderated and net exports remained a drag on growth.
Despite the strong FY26 finish, Nuvama's report suggests that the trajectory of oil prices, geopolitical developments and monsoon conditions will be critical factors shaping India's economic outlook in FY27.
— ANI
Reader Comments
It's concerning that after such strong GDP growth in FY26, we're staring at stagflation risks. But I think India has better buffers now than in 2013 — Forex reserves are healthy, and the RBI seems proactive. The 6-6.5% GDP forecast for FY27 still puts us among the fastest growing major economies. Need to watch the monsoon data closely though.
Brokers ki baaton ka kya bharosa? Har saal koi na koi "crisis" ka alarm bajate hain. FY26 mein bhi 7.7% growth aaya toh kuch nahi hua. But honestly, weak monsoon is a genuine worry for our farmers — agar kharif crop fail hua toh inflation definitely spike karega. Government ko MSP aur irrigation pe seriously kaam karna hoga. 😤
The Iran crisis could indeed be a double-edged sword — higher oil prices mean more revenue for our refineries but pain for consumers. I appreciate that Nuvama has highlighted the risk of stagflation, but let's not forget India's domestic resilience. The RBI's "deft liquidity management" and healthy credit growth are silver linings. Let's hope the monsoon gods are kind this year. 🇮🇳
Stagflation is a scary word, but India has navigated similar challenges before. Our economy is far more diversified now — IT services, pharma, manufacturing exports are all doing well. The real pain will be for the common man if fuel and food prices spike simultaneously. I just hope our policymakers don't ignore the structural issues and focus only on managing the crisis. Critique: This report should have also mentioned the potential positive impact of a normal monsoon forecast from IMD.
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