India's Economic Growth Faces Challenges Amid Waning Tailwinds

India's economy could experience pressure in the latter half of FY27 as demand risks overshadow previous growth tailwinds, according to a Nuvama report. Key issues include fading GST cuts, emerging El Nino threats, and weakening income growth. Despite these challenges, India remains appealing compared to other emerging markets.

A recent report from Nuvama has highlighted potential challenges to India's economic growth in the second half of FY27, as demand-related risks start outweighing the earlier cyclical tailwinds. Factors such as the diminishing impact of GST cuts, the threat posed by El Nino, and weakening income and credit multipliers could put pressure on demand.

The report further notes that commodity prices, which began their upward trend in September 2025, along with the depreciation of the Indian rupee, have now become part of the base. In the absence of a new rally, top-line growth is likely to decelerate. Nuvama's analysis also points to a softer economic environment, with accelerated bank credit failing to spur broader economic activity.

Consumption has only marginally improved over recent quarters, despite measures like income tax relief and GST rationalization. The report observed slow government capital expenditure, with states prioritizing revenue over capex. Nevertheless, India remains an attractive market amid moderated valuations and supportive RBI measures, advising a defensive investment strategy focusing on IT, consumer, and private banks sectors.