India's macroeconomic outlook could improve meaningfully if Brent crude prices fall below $90 per barrel, according to Vijayaraghavan Swaminathan, managing director and head of research at Avendus Spark Institutional Equities. While exports and manufacturing offer reasons for optimism, elevated crude prices and emerging risks to rural demand remain key concerns.
“Brent crude levels remain crucial for the macro economy,” Swaminathan said, adding that rural demand could moderate from here. The full impact of El Niño is likely to become visible in 2027, potentially posing further risks to rural consumption.
However, India's export performance offers a silver lining. Non-oil, non-gold exports grew in the mid-teens during the first half of the current financial year, while manufacturing exports are showing signs of revival. Swaminathan expects manufacturing exports to gather momentum over the next 18-24 months, with electronics manufacturing services (EMS), capital goods and textiles emerging as promising segments.
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He also expects healthier corporate earnings in the second and third quarters of FY27, supported by improving demand conditions on the ground.
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Avendus Spark's latest report highlights several factors supporting India's growth outlook, including stronger credit growth, improving capacity utilisation and rising project announcements. New project announcements jumped 29% year-on-year (YoY) to Rs 14.6 trillion in the first quarter of FY27. Electronics exports surged 67.6% year-on-year to $21.1 billion during the first four months of FY27.
The brokerage also expects the Reserve Bank of India to raise the repo rate by 50-75 basis points from December 2026 as consumer price inflation rises to 5-5.5%. However, it argues that rate hikes need not necessarily be bearish for equities, as they can signal improving economic growth.
On the other hand, rural demand indicators warrant caution. Declining MGNREGA person-days, moderating real rural wage growth and El Niño risks could weigh on consumption.
Avendus Spark remains overweight on financials, consumption, industrials and pharmaceuticals, while maintaining an underweight stance on IT, staples, property developers, capital market proxies and metals.
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