AI capex slowdown could hit India's cyclical recovery: Nuvama
Nuvama warns a global AI capex slowdown could derail India's cyclical recovery, citing weak domestic demand and concentrated investment.
A potential slowdown in the global artificial intelligence (AI) capital expenditure boom could pose a significant risk to India's ongoing cyclical recovery, according to Nuvama Research. The brokerage warns that weaker global demand and lower commodity prices could weigh on corporate revenue and credit growth, amplifying the impact of an already narrow domestic recovery.
India has seen cyclical buoyancy over the past year, with corporate top-line growth rising to around 20 per cent year-on-year and aggregate credit growth near 15 per cent. This momentum has been supported by domestic measures such as GST cuts and monetary easing, alongside the global commodity and AI capex boom. However, Nuvama cautions that India has been only a limited beneficiary of the AI investment cycle, which has helped lift commodity prices and manufacturing inflation.
The research also points to a widening divergence in GST collections. While imported GST collections have strengthened, domestic GST growth remains weak, suggesting muted underlying demand. This is attributed to soft services demand, higher import prices, and a K-shaped consumption recovery, where premium goods with higher import content outperform lower-end products.
Broader consumption indicators also show weakness. Despite tax relief and RBI easing, overall consumption growth has not accelerated significantly, and real estate sales have weakened. Listed real estate companies' pre-sales have moved into contraction on a trend basis for the first time since the Covid period.
India's capex recovery remains concentrated in the power sector, while corporate capex outside power and broader national capex stay subdued. Nuvama warns that a global slowdown could affect India through lower commodity prices, weakening nominal corporate revenue and credit growth, while softer exports could compound domestic demand weakness. With government and real estate capex also relatively subdued, slower exports could further weigh on cyclical momentum.
Nuvama expects a global AI capex slowdown to pose a meaningful downside risk to India's recovery, particularly because domestic demand and investment have yet to become broad-based.