Inflation, El Niño risks may disrupt India’s consumption growth and increase fiscal burden by Rs 5 trillion: Report

India’s consumer demand recovery could face fresh pressure from rising inflation, El Niño-related disruptions and global geopolitical uncertainty, potentially increasing the country’s fiscal burden by up to Rs 5 trillion, according to a report by Prabhudas Lilladher.

The report warned that higher prices of daily essentials, energy products and key commodities could start affecting consumption momentum from the second quarter of FY27. It noted that global supply chain disruptions and rising crude oil prices have already pushed up costs across petrol, diesel, LPG, FMCG products, dairy, chemicals, consumer durables and automobiles.

“Higher daily essentials, El Nino and rising inflation have the potential to curtail consumption demand,” the report said, highlighting risks to household spending.

The report added that despite external challenges, India’s economic growth trajectory remains resilient.

However, early signs of stress are emerging due to rising geopolitical risks and India’s dependence on imports for critical areas including crude oil, fertilisers, rare earth materials, semiconductors and advanced technologies.

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According to Prabhudas Lilladher, the ongoing West Asia conflict has also impacted investor sentiment, with the Nifty declining 7.2 per cent in two months and nearly 15.4 per cent from its 52-week highs amid concerns over supply chain disruptions and higher crude prices.

The brokerage maintained a positive outlook on sectors supported by domestic investment and structural growth themes, including capital goods, defence, data centres, renewables, railways, ports, shipbuilding, semiconductors and healthcare.

However, it remained cautious on sectors such as IT services, consumer goods, chemicals, agriculture and oil and gas due to uncertain global conditions.

The report added that while markets may not witness a major correction below recent lows, prolonged geopolitical uncertainty could increase volatility and lead to sharper swings.