New Delhi [India], June 6 (ANI): Rising geopolitical tensions and a potential supply shock stemming from the Iran crisis could increase the risk of stagflation in India, Nuvama Institutional Equities said in a GDP analysis report, even as the country's economy closed FY26 with stronger-than-expected growth.

The brokerage warned that FY27 could be more challenging despite healthy economic activity in the March quarter.

'FY27 is likely to be a challenging year, beginning with heightened geopolitical tensions that could keep input costs elevated and weigh on real income,' the report said.

Highlighting the key risk to the economy, Nuvama said, 'With the economy already in an inflationary phase, a prolonged supply shock - particularly alongside a weak monsoon - raises the risk of a stagflationary environment.'

Stagflation refers to a situation where economic growth slows while inflation remains elevated.

The warning comes after India's real GDP growth stood at 7.8 per cent in the fourth quarter of FY26, while full-year growth accelerated to 7.7 per cent from 7.1 per cent in FY25.

According to the report, 'Economic activity was largely stable in Q4FY26. Real GDP growth was healthy at 7.8% YoY, while NGDP growth was subdued at 9.1%.'

However, the brokerage cautioned that emerging global risks could weigh on the growth outlook going forward.

Reflecting these concerns, Nuvama said, 'We revise downward our FY27 RGDP growth forecast to 6-6.5% YoY, but expect NGDP to accelerate to 11-12%.'

The report attributed the revision to the impact of higher oil prices linked to the Iran crisis.

'The revisions are owing to the oil shock amid the Iran crisis,' it said.

Nuvama noted that elevated input costs could put pressure on households and businesses, even as inflation boosts nominal growth.

At the same time, the brokerage said several domestic factors could help limit the downside risks. 'RBI's deft liquidity management, a relatively undervalued INR and healthy credit growth should help cushion the downside,' the report said.

Reviewing the FY26 performance, the report described economic activity as stable, with investment strengthening during the March quarter. It noted that 'investment (GFCF) picked up sharply to 10.8% (Q3: 8.2%),' even as private consumption growth moderated and net exports remained a drag on growth.

Despite the strong FY26 finish, Nuvama's report suggests that the trajectory of oil prices, geopolitical developments and monsoon conditions will be critical factors shaping India's economic outlook in FY27. (ANI)