The tensions in West Asia are beginning to cloud India’s near-term economic outlook, with rising crude oil prices posing risks to growth, inflation and corporate earnings. Market experts warn that the ongoing US-Iran conflict could lead to modest equity returns and heightened volatility in the months ahead.
Crude oil prices have remained above $100 per barrel for over two months, raising concerns about India’s current account deficit, inflation trajectory and overall GDP growth.
A prolonged disruption—particularly any blockade of the Strait of Hormuz—could significantly affect the supply of crude oil and LPG, keeping energy prices elevated and market sentiment fragile.
“Supply constraints in parts of India’s energy basket, coupled with a sharp rise in prices, have created near-term headwinds for economic activity in the first quarter of this fiscal,” said Debopam Chaudhuri, chief economist at Piramal Group.
While India’s large economic base, strong forex reserves and diversified sourcing strategy offer some cushion, he cautioned that the buffer is limited.
Government data already indicates two consecutive months of contraction in LPG consumption (year-on-year), along with early signs of softening aviation fuel demand in April. A prolonged disruption could shave 25–35 basis points off GDP growth this year, he noted.
India’s economy has expanded at over 7 percent annually since 2022, but global uncertainties are expected to weigh on momentum this year.
The Reserve Bank of India has projected GDP growth at 6.9 percent for FY27, with inflation estimated at 4.6 percent—within its 2–6 percent tolerance band.
However, several estimates are more cautious:
UN projection: 6.4 percent growth
UBS forecast: 6.2 percent
Standard Chartered: 6.4 percent (assuming crude at $90 per barrel)
Analysts believe growth could slip to 6–6.5 percent if elevated energy prices persist.
Despite the headwinds, India is expected to remain among the fastest-growing major economies globally. However, equity market returns may be subdued.
Aurelien Kruse of the World Bank noted that strong macroeconomic fundamentals will continue to support India’s growth, though the recovery could be gradual.
Vinit Bolinjkar of Ventura Securities expects modest returns with volatility as the dominant theme in FY27.
“Valuations are already richer than historical norms and emerging-market peers. Any further spike in oil prices or rupee weakness could trigger sharp corrections, especially in rate-sensitive and import-dependent sectors,” he said.
According to Apurva Sheth of SAMCO Securities:
A $10 rise in crude increases India’s import bill by about $13–14 billion
With crude near $100 (from about $65 earlier), the additional burden could reach $50–60 billion
While the impact may not be as severe as during the 2008 oil shock, second- and third-order effects—such as inflation, interest rates and consumption slowdown—remain key risks.
“Crude prices are likely to remain volatile until the geopolitical situation improves. This uncertainty could keep markets on edge through the financial year,” Sheth said.
He expects the Nifty to remain range-bound between 22,500 and 26,500 in the near term.
Growth risks are rising, but not derailing
Inflation pressures could persist if oil stays elevated
Markets may deliver modest returns with high volatility
Long-term fundamentals remain intact, but near-term caution is warranted
For investors, the message is clear: stay selective, expect volatility, and avoid overreacting to short-term geopolitical shocks.
(By arrangement with livemint.com)
