AI capex slowdown could derail India's cyclical recovery, weigh on growth: Nuvama

Any slowdown in the global artificial intelligence (AI) capital expenditure boom could pose a significant risk to India's ongoing cyclical recovery, with weaker global demand and commodity prices likely to weigh on corporate revenue and credit growth, while a still narrow domestic recovery could amplify the impact, according to Nuvama Research.

Nuvama said India has experienced cyclical buoyancy over the past year, particularly in nominal variables such as corporate top-line growth and aggregate credit. Corporate top-line growth has risen to around 20 per cent year-on-year, while aggregate credit growth is around 15 per cent, supported partly by domestic measures including GST cuts and monetary easing, as well as the global commodity and AI capex boom.

However, the brokerage cautioned that the recovery remains uneven and vulnerable to an external slowdown. India has been a limited beneficiary of the global AI capex cycle, which has supported commodity prices and lifted manufacturing inflation. A moderation in AI-related investment could therefore weaken some of the nominal momentum seen in the economy.


Nuvama also highlighted a widening divergence in GST collections. While imported GST collections have strengthened, domestic GST growth has remained relatively weak, suggesting muted underlying domestic demand. The brokerage attributed the divergence to factors including weak services demand, higher import prices and a K-shaped consumption recovery, where premium goods with higher imported content are performing better than lower-end products.

The weakness is also visible in broader consumption indicators. Despite GST cuts, income-tax relief and RBI easing, overall consumption growth has not accelerated significantly, while 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.

The brokerage further noted that India's capex recovery remains concentrated in the power sector, while corporate capex outside power and broader national capex remain subdued. This narrow investment cycle mirrors a global recovery driven by policy support and sector-specific factors rather than broad-based reflation.

Nuvama warned that a global slowdown could affect India through prices and demand. Lower commodity prices could weaken nominal corporate revenue and credit growth, while softer exports could compound domestic demand weakness. With government and real estate capex also relatively subdued, the brokerage said 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.