FY27 Outlook

The three prevalent FY27 themes  across industries include: AI-led productivity investments, domestic consumption recovery, and geopolitical supply-chain risk management.

The banking industry is starting FY27 with the best credit-quality cycle in a decade. The growth in credit at 12-15 percent year on year, the decline in NPA of both the public and private sector lenders, and the measured rate trajectory by the RBI provides a favorable environment. But the NIM headwind of competing on the cost of deposits is predicted to continue through H1 FY27.

The 1.5-3.5% constant currency growth in the 2027 FY guidance in the IT sector is cautionary of the macro environment but deal pipelines - TCS at $40.7 billion TCV and Infosys at $14.9 billion - signal that the structural offshoring story has not been lost. The secular growth pockets will be renewable energy and infrastructure, which will be supported by the energy transition commitments and capex of the Indian government.

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Key Risks to Monitor in FY27

Global & Macro Risks

• Crude price volatility is caused by geopolitical tensions in the Middle East.
• Increasing US tariffs affecting Indian IT and pharma export earnings.
• Reduced worldwide technological expenditure - Accenture/IBM projections are already anxious.
• The slowdown in China demand is putting pressure on the prices of commodities to the exporters of metals.

Sector-Specific Risks

• Banking: NIM compression due to deposit cost competition that will continue in H1 FY27.
• IT: Margins may be squeezed by an increase in visa costs and a risk of rupee appreciation.
• Pharma: US FDA regulatory headwinds; price wars in generic markets.
• FMCG: The pace at which rural demand is recovering is uncertain; cost of inputs is increasing.

Positive Triggers to Monitor

• RBI rate reductions to promote credit expansion and NIM recovery in H2 FY27.
• India-US trade agreement is making headway offering optimism in the IT sector.
• Disbursements in PLI scheme expediting domestic production.
• Rural FMCG and agri Monsoon performance - key.

Policy & Regulatory Watch

• SEBI F&O reforms - implications of the reforms on the brokerage and exchange revenues.
• RBI regulations on unsecured lending - observe NBFC effect.
• The rate of execution of government capex is vital to infra and cement.
• Revision of income tax Act - change in corporate tax structure, as and when required.