India Well-Positioned To Benefit If US Recession Materialises, Says Bernstein

As global risks like the possibility of a US recession and reciprocal tariffs are being discussed, Bernstein’s India strategy offers a positive outlook for the economy in the coming year. The firm believes that India’s macroeconomic situation has bottomed out, and the country is set to see GDP growth around 6.5% for the year ahead.

Despite global uncertainties, India is well-positioned to benefit if a US recession materialises, the brokerage said in its report on Tuesday.

India’s growth trajectory has often been independent of the US economy, and past experiences show that India has typically recovered ahead of the US during economic slowdowns. The weak GDP growth seen in the September quarter last year suggests that India has already reached its economic bottom, positioning it for recovery even if the US faces a recession.

While the broader markets have faced corrections, India is expected to benefit as the global trade environment stabilises.

Bernstein maintains a positive view on the Nifty index, setting a year-end target of 26,500, though caution is advised as market sentiment could fluctuate based on global events.

A potential US recession could lead to lower commodity prices, which could be beneficial for India. Commodities like crude oil, copper, aluminum, and steel, which are linked to US economic performance, might see suppressed prices.

This would reduce India’s import bills, help keep inflation under control, and ease pressure on the Indian rupee. Furthermore, the possibility of rate cuts could act as a catalyst for economic recovery in the latter half of the year.

India's export basket is less vulnerable to a US downturn compared to other economies, the brokerage said in its report. Sectors like pharmaceuticals, IT services, jewelry, and petroleum are less impacted by changes in US consumer spending. While sectors such as auto components and apparel may face some challenges, their overall impact on India's economy remains limited.

Despite recent outflows of foreign institutional investments, domestic market participation remains strong. With $28 billion in outflows since October, the correction has been less severe than past crises, like the Global Financial Crisis or COVID-19, said Bernstein. FDI has remained steady, and remittances, while affected in the short term, typically recover within a few months.