Global Brokerage Sees Lower Oil Prices, Stronger Domestic Demand and Improving Global Growth Supporting India's Economic Momentum Despite Higher US Rate Expectations

Global brokerage BofA Securities has upgraded its outlook on India's economy, raising its 2026 Gross Domestic Product (GDP) growth forecast to 7% from the 6.2% estimated earlier in April. The firm also expects India to maintain a 7% growth rate in 2027, citing stronger-than-anticipated domestic economic activity, resilient consumption, improving industrial production and a more supportive global environment.

At the same time, BofA expects Brent crude oil prices to average around $72 per barrel during the second half of calendar year 2026 (H2CY26) before easing further to $65 per barrel in 2027, assuming geopolitical tensions in West Asia continue to subside.

The revised projections present a constructive outlook for India, where lower energy costs combined with stronger economic growth could provide support to corporate earnings, inflation management and fiscal stability.

India's Growth Story Gets Stronger

BofA's upward revision reflects increasing confidence in India's economic resilience.

Revised GDP Forecast

The brokerage attributed the upgrade to:

• Better-than-expected first-quarter GDP performance.

• Continued strength in domestic consumption.

• Robust government infrastructure spending.

• Strong industrial production.

• Improving macroeconomic conditions.

India continues to stand out as one of the fastest-growing major economies, supported by healthy domestic demand and ongoing structural reforms.

Lower Crude Oil Prices Offer Significant Relief

One of the key highlights of BofA's report is its expectation that crude oil prices will remain relatively moderate.

The brokerage forecasts:

• Brent crude averaging around $72 per barrel during H2CY26.

• Further moderation to around $65 per barrel in 2027.

The outlook assumes that peace efforts in West Asia continue and there are no major disruptions to global energy supplies.

For India, which imports nearly 85% of its crude oil requirements, lower oil prices are particularly beneficial because they:

• Reduce the country's import bill.

• Ease inflationary pressures.

• Improve the current account balance.

• Support fiscal management.

• Strengthen the Indian rupee over the medium term.

Lower fuel costs also improve profitability for several sectors including aviation, paints, logistics, chemicals and manufacturing.

Geopolitical Risks Begin to Ease

The brokerage believes the sharp geopolitical risk premium that had pushed crude prices higher earlier this year has gradually diminished.

Shipping activity through the Strait of Hormuz, one of the world's most important energy trade routes, has recovered significantly following improved security conditions.

According to shipping data:

• Vessel movement has increased substantially.

• Oil and LNG tanker traffic has normalised.

• New safe navigation corridors have been established.

• Supply chain concerns have moderated.

Although geopolitical risks have not disappeared entirely, improving maritime activity has reduced fears of immediate supply disruptions.

Global Growth Outlook Improves

BofA has also become more optimistic about the global economy.

Revised Global GDP Forecast

• 2026: 3.2%

• 2027: 3.5%

• 2028: 3.3% (Initial Forecast)

Compared to its April projections, the brokerage has marginally upgraded growth expectations for both 2026 and 2027.

The improved outlook reflects stronger economic activity across several emerging markets and continued resilience in major developed economies.

Emerging Asia Continues to Outperform

Beyond India, BofA expects the broader Emerging Asia region (excluding China) to deliver stronger-than-anticipated growth.

The brokerage now forecasts:

• 5.9% growth in 2026

• 5.8% growth in 2027

The improvement reflects:

• Better domestic demand.

• Recovering regional trade.

• Stable commodity prices.

• Improved investment sentiment.

A stronger regional economy is expected to benefit India's exports and manufacturing sector.

Inflation Expected to Moderate Further

Another encouraging aspect of the report is the expectation of easing global inflation.

BofA projects:

• 2026 Inflation: 3.0%

• 2027 Inflation: 2.4%

• 2028 Inflation: 2.5%

Lower inflation should support consumer spending, improve business confidence and provide greater flexibility for central banks around the world.

For India, softer global inflation combined with lower energy prices could help maintain macroeconomic stability.

AI Boom Continues to Support Global Economy

BofA believes the global economy continues to be supported by several structural themes.

Among the most important:

• Rapid adoption of Artificial Intelligence (AI).

• Expansion in digital infrastructure.

• Strong government spending.

• Healthy global liquidity.

• Continued technological innovation.

The brokerage believes AI-led investment will remain a major driver of productivity growth and corporate earnings over the coming years.

US Federal Reserve May Tighten Further

Despite improving global growth, BofA expects tighter monetary policy in the United States.

The brokerage now forecasts:

• 75 basis points of US Federal Reserve rate hikes during 2026.

• The tightening cycle is expected to begin around September.

The outlook reflects:

• A resilient US labour market.

• Persistent inflationary pressures.

• Strong domestic economic activity.

Higher US interest rates could strengthen the dollar and increase volatility in emerging markets, including India.

Key Risks Remain

Although the overall outlook has improved, BofA cautions that several risks continue to deserve attention.

These include:

Geopolitical Risks

Any renewed conflict in West Asia could once again push oil prices sharply higher.

Asset Market Corrections

The brokerage warns that a significant correction in global equity markets could weaken consumer confidence and investment activity.

Fiscal Imbalances

Rising government debt in major economies remains a medium-term concern.

China's Industrial Overcapacity

Excess production capacity in China continues to create pricing pressures across several industries.

Global Liquidity Conditions

Changes in financial conditions resulting from tighter US monetary policy may influence capital flows into emerging markets.

Implications for Indian Markets

The revised outlook presents several positive implications for India's financial markets.

Beneficiary Sectors

If crude oil remains near current levels and GDP growth reaches 7%, sectors likely to benefit include:

• Banking.

• Capital Goods.

• Infrastructure.

• Consumer Discretionary.

• Airlines.

• Cement.

• Paints.

• Chemicals.

• Logistics.

• Manufacturing.

Lower fuel costs combined with stronger domestic demand could improve corporate profitability across these industries.

What Investors Should Watch

Going forward, investors should closely monitor:

• Crude oil prices.

• Developments in West Asia.

• US Federal Reserve policy.

• Global inflation trends.

• India's industrial production.

• Corporate earnings.

• Capital expenditure cycle.

• Foreign institutional investment flows.

These factors will shape both equity market performance and macroeconomic conditions over the next several quarters.