India's Cyclical Recovery at Risk from Oil Shock and Slowing AI Investment
India's cyclical recovery is facing rising risks from an oil supply shock and fading domestic stimulus, according to a Nuvama Institutional Equities report. The report warns that the impact of the oil supply shock on corporate margins will emerge from Q2FY27, similar to what happened during the 2022 war when small- and mid-cap companies suffered a larger hit to profits.
The AI investment boom is no longer giving a strong boost to financial markets, possibly because the growth in AI-related spending is slowing. If this trend continues, the positive impact of AI investment on exports and metal prices could weaken from the second half of FY27.
Major technology companies face rising chip costs, stronger competition from China, and weaker cash flows, forcing them to rely more on debt to fund their investments. This could lead to a slowdown in AI investment, which has been a key driver of India's cyclical recovery.