Global Stock Markets Brace for Demand Shock Amid Economic Turbulence

Global stock markets are on high alert for a potential demand shock, following a series of economic jolts including tariffs, technological disruptions, and escalating oil prices, according to a new report by Nuvama Institutional Equities.

The report underscores that fiscal year 2026 has been marked by unprecedented economic shocks. It raises the alarm about a possible demand-driven setback as the US labor market shows signs of softening, creating recession-like conditions. The report further suggests that the US private credit market, which is crucial for lending, is grappling with liquidity issues.

These developments could threaten global technology valuations and diminish capital investments in artificial intelligence, reminiscent of the dot-com crash. Nuvama emphasizes the need for policy support, such as quantitative easing by the US Federal Reserve and a reinvigorated oil supply, to stabilize markets. Absent such measures, heightened market volatility is likely to persist.

The report warns that a global risk-off environment could adversely impact Indian equities. It notes that a considerable portion of the BSE500 index faces sector-specific challenges in IT and FMCG, while expensive cyclicals like automobiles remain exposed to broader economic threats. High valuations are prompting recommendations to downgrade metals to underweight due to historically high valuations.

Although some recovery is observed in sectors buoyed by GST cuts, others like real estate and steel languish. While earnings forecasts for FY27 remain optimistic, fueled by a predicted 19% growth for the BSE500, they are vulnerable to export volatility and rising oil prices. Despite stable returns, sector valuations are still high, and certain firms operating on peak margins face increased exposure to macroeconomic shocks.