Indian Stock Market Outlook: Crude Oil Price Surge Threatens Earnings Recovery

The Indian stock market is facing a significant threat to its expected earnings recovery due to the surge in crude oil prices. Brent crude has remained above $100 per barrel, causing concerns that the Indian economy's growth story is at risk.

Macroeconomic Risks

India's exposure to crude oil price shocks is significant, as the country imports approximately 85-90% of its oil requirements. Higher crude oil prices can lead to a 30-40 basis-point decline in GDP growth, widen the current account deficit (CAD) from 1.1% of GDP at $70 per barrel to 2.0-2.4% at $90-100 per barrel, and drive inflation up by 30-50 basis points.

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Impact on Earnings Recovery

The expected earnings recovery in India Inc. is now at risk due to the prolonged impact of crude oil price shocks. Goldman Sachs has lowered India Inc.'s earnings growth forecasts by 9 percentage points over the next two years to 8% and 13% for the calendar years 2026 and 2027, respectively. The global financial firm has also downgraded Indian equities to "marketweight" from "overweight", noting worsening macro and slowing earnings growth.

Investment Strategy

Investors are advised to take a long-term view, as the recent correction has brought valuations across segments to fair levels, making them attractive long-term bets, given India's strong long-term outlook. However, investors should be cautious of the near-term market outlook, which remains hazy amid heightened uncertainties.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Key Figures

• Brent crude: above $100 per barrel
• GDP growth: 5.9% (forecast by Goldman Sachs)
• CPI: 5% (forecast by Goldman Sachs)
• Current account deficit (CAD): 2% of GDP (forecast by Goldman Sachs)
• Interest rate hike: 50 bps (forecast by Goldman Sachs)
• Nifty's 12-month target: 25,900 (forecast by Goldman Sachs)