Inflation, El Nino may disrupt demand, raise fiscal burden: Report

Prabhudas Lilladher report says surging inflation and El-Nino can disrupt consumer demand from 2Q27, increasing India's fiscal burden by up to Rs 5 trillion due to higher subsidies, rising crude prices, and geopolitical risks.

Surging inflation and EL-Nino can disrupt consumer demand momentum from 2Q27, likely increasing India's fiscal burden by up to Rs 5 trillion, says a report by Prabhudas Lilladher.

Economic Pressures and Vulnerabilities

The global supply chain disruption and rising crude prices have led to higher prices of petrol, diesel, LPG, FMCG, dairy, chemicals, durables and auto. Noting that the West Asia war has shaved 7.2 per cent off Nifty in two months and nearly 15.4 per cent from 52-week highs, disrupting supply chains and spiking crude, it said, "Indian economy has not shown any brakes on the growth trajectory."

However, "fissures have started showing up a bit in the wake of rising geopolitical risks and India's foreign dependence, not only for crude but for essentials like Fertilizers, rare earths, semiconductors, and critical technologies," it said.

"We believe that the full impact of higher daily essentials, EL Nino, rising inflation has the potential to curtail consumption demand from 2Q27," said Prabhudas Lilladher.

Fiscal Burden and Monetary Policy Concerns

According to the report, India's fiscal burden may rise by Rs 4-5 trillion due to costlier fertilizer, food and fuel subsidies, and lost petroleum taxes. "We believe India would have a significant spike in subsidy for Fertilizers, Food and Fuel and loss of excise on petroleum products, which could put an incremental fiscal burden of Rs 4-5 trillion," the report said.

Meanwhile, it added, "We don't rule out the possibility of repo rate hike from 2H27. Balance of trade, including services, remains comfortable; however, sustained FII selling, pressure on remittances (USD 120bn/annum and USD 40 bn from the Middle East) and crude spikes are placing the currency under stress."

Sectoral Outlook and Market Volatility

Sectorally, Prabhudas Lilladher is optimistic on private banks, NBFC, metals, capital goods, defence, data centers, renewables, railways, ports, ship building, semiconductors and healthcare.

Meanwhile, it has kept a cautious stance on IT services, consumer, chemicals, agri and oil and gas. Additionally, it added "Although markets are unlikely to show significant correction to breach recent lows, prolonged geopolitical uncertainty can further add to sharp swings." (ANI)

(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)