US-Iran Tensions Weigh on Oil Markets, Potential Earnings Downgrade for Indian Companies in FY27

Inflation Concerns Mount as Oil Prices and Fuel Hikes Take Center Stage

The recent spike in oil prices, coupled with the government's fuel hikes of over ₹7, has brought the spotlight back on inflation in India. With the oil price surge of almost 55% since the onset of the Middle East war between the US and Iran, a major input cost for many industries, the impact on margins is likely to be steeper.

The latest developments in West Asia have led to a significant increase in oil prices, which have cooled off to below $100 per barrel as traders eye the scope of fresh peace talks between the US and Iran. Although the ceasefire continues to hang by a thread amid skirmishes near the Strait of Hormuz. The fuel hikes have added to the inflationary pressures, with the latest manufacturing PMI survey (Apr'26) already showing inflationary pressures across energy, food, fuel, gas, iron, leather, oil, plastics, rubber, steel, and transportation.

According to JM Financial Services, the second-order effects will be pronounced if the incremental fuel price hikes are not spread out, which would eventually unanchor inflation expectations. The RBI expects inflation to average 4.6% in FY27, but may have to edge it up at the upcoming MPC meeting in Jun'26.

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The WPI inflation has flared up to a 42-month high of 8.3% in April, reflecting the global commodity price pressures. With inadequate passthrough, retail or consumer price index (CPI) based inflation rose modestly to 3.48% in April. The CPI inflation data for May is scheduled to be released on June 12.

The impact of rising inflation on earnings is fairly straightforward. Higher input costs can put pressure on margins, which may affect profitability. However, inflation also tends to push up revenues because companies often pass on higher costs through price hikes. While margins may come under pressure, topline growth can remain strong, said Nikhil Gangil, founder and CIO at Intrinsic Value.

Some sectors, such as paints, chemicals, aviation, cement, and consumer goods, could feel the heat more because of their heavy dependence on raw materials and energy costs. However, businesses with strong brands and better pricing power can still pass a part of the cost burden to customers, thereby protecting their bottomline.

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The bigger challenge is that higher crude prices eventually filter through the entire economy, as rising oil prices not only increase fuel expenses but also affect transportation, logistics, and overall operating costs. However, Dr. Ravi Singh, Chief Research Officer (Research) at Master Capital Services Limited, noted that the impact is likely to remain more selective and sector-driven.

Since markets are a slave to earnings, any slowdown can be an added worry for the Indian stock market, already reeling from intense selling pressure. Oil price spike, rupee weakness, and FII selling remain key headwinds for the market. However, Nikhil Gangil believes that the market has recently formed what appears to be a long-term bottom after nearly 18–20 months of correction.