The Reserve Bank of India has flagged rising risks to the global economy from multiple fronts, with Governor Sanjay Malhotra warning that the global financial system was passing through a period of 'elevated uncertainty and challenges' with implications for both economic activity and financial markets. According to the latest RBI Bulletin, the central bank highlighted geo-economic fragmentation caused by tariffs, trade restrictions and industrial policies as reshaping global supply chains and affecting capital flows. Persistently high public debt in major economies, stretched valuations in certain asset classes and rapid expansion of private credit markets were identified as emerging risks to financial stability. The RBI specifically warned that recent escalation of geopolitical tensions in West Asia had sharply raised energy prices amid damage to energy infrastructure and disruptions in supply chains, cautioning that if the crisis persists, it could trigger broader inflationary pressures.
Market expert Sunil Subramaniam has advised investors to remain cautious in the near term amid rising geopolitical uncertainty, input cost pressures and the evolving impact of the ongoing global conflict on corporate earnings. According to reports from The Economic Times, he expects volatility to remain elevated as crude prices, RBI policy decisions and Q1 earnings determine market direction in coming months. The expert emphasized that the full impact of the global conflict will likely become visible only in the June quarter earnings season, making current market movements potentially misleading. His warnings align with the RBI's assessment of elevated uncertainty and challenges facing global markets.
Despite global uncertainties, the RBI highlighted that India continued to demonstrate resilience across five key macroeconomic fronts — economic growth, inflation management, fiscal consolidation, banking sector stability and the external account. The central bank noted that India has remained among the fastest-growing major economies since the pandemic, recording average growth of 8.2 per cent during 2021-25. The economy is estimated to have grown by 7.6 per cent in 2025-26, while growth for 2026-27 is projected at 6.9 per cent. On inflation, the RBI said headline retail inflation had remained below the 4 per cent target in recent period, aided by the flexible inflation targeting framework, with the central bank projecting average CPI inflation at 4.6 per cent for FY27. The RBI also highlighted improvement in banking and NBFC balance sheets, with gains in capital adequacy, asset quality and profitability, while corporate balance sheets have strengthened and fundraising through corporate bond markets has remained robust.
Subramaniam highlighted consumer durables and capital goods as his top investment themes, explaining that companies in these segments typically enjoy high operating leverage, meaning strong topline growth can cushion the impact of higher raw material prices. As reported by The Economic Times, he noted that capital goods companies are relatively insulated from immediate geopolitical shocks and stand to benefit from continued government and private sector capital expenditure. The expert also expressed optimism about high-end retail and digital-first platform companies benefiting from India's ongoing premiumisation trend. His recommendations come as the RBI emphasizes that strong domestic demand remained supported by strong consumption and public investment, with the government's capital expenditure push helping crowd in private investment and improve productive capacity.
On the external front, the RBI said India's foreign exchange reserves remained comfortable with import cover of around 11 months, while the current account deficit remained sustainable despite pressure from elevated energy prices. The central bank also highlighted strong gross foreign direct investment inflows and recent trade agreements expected to support the external sector going forward. Given the current uncertainty, Subramaniam advised moderate investors to maintain balanced portfolios with roughly equal exposure to largecaps and mid/smallcaps. More aggressive investors with a longer investment horizon can increase exposure to midcaps and smallcaps but should be prepared for elevated volatility. He identified sectors to avoid in the current environment, including energy stocks due to extreme volatility linked to crude price movements and geopolitical developments, and remains cautious on information technology stocks due to persistent concerns around artificial intelligence impact.
