Nifty50 impact: $114 oil is rewriting India's growth outlook

Brent crude prices touched a four-year high of $126 per barrel on Thursday before easing, highlighting continued volatility in global oil markets. At last check, ICE Brent Crude stood at $114.05 per barrel, down 3.37 per cent, while NYMEX crude declined 1.82 per cent to $104.93 per barrel.

Experts warn that sustained high crude prices could strain India's macroeconomic fundamentals and corporate profitability, given the country's significant reliance on imported oil.

Kranthi Bathini, Equity Strategist at WealthMills Securities, said, "Any rise in crude oil prices is definitely going to have a negative impact on the Indian economy in the medium to short term. Any elevated crude oil prices for an extremely long period of time, that’s going to create an inflationary environment on economy."

He added, "So if crude oil comes back to the range of $80-85, that's going to be a favourable environment. But as long as crude oil prices are high, that's going to create some kind of pressure on the Indian economy and on the market in the medium to short term."

Market veteran Arun Kejriwal said, "Investors should remain cautious at current levels as geopolitical tensions are yet to ease. Even if the Strait of Hormuz remains open, it may still take two to three months for the situation to stabilise. At present, unchanged retail fuel prices are supporting the economy, but the impact could be felt if crude sustains above the $110–115 per barrel range."

Gaurav Sharma of Globe Capital shared a similar outlook, noting that, "Even a level close to $100 per barrel is already quite high for the Indian economy, and we are now trading much above that."

"Yet, the Indian markets are not reacting as negatively as they were earlier. I still maintain caution, as these persistently high crude levels will certainly have a negative impact," he added.

Ravi Singh, Chief Research Officer at Mastertrust, noted, "Higher crude prices quickly translate into increased costs for raw materials, transportation, and packaging. Compounding this is the severely weakened rupee, meaning companies are paying inflated global prices with a depreciated currency. The problem is, companies can't fully pass these costs on to consumers right away, which ends up directly squeezing margins."

Which sectors are most impacted and likely to feel the pressure?

According to Singh, sectors with significant exposure to crude-linked inputs are taking the biggest hit. Industries such as aviation, paints, chemicals, and tyres are under pressure, as their cost structures are closely tied to oil derivatives.

"On top of that, retail fuel prices haven't moved much, which means Oil Marketing Companies (OMCs) are absorbing a massive part of the pressure themselves -- with brokerages warning their earnings could collapse by over 90 per cent," Singh added.

"If crude continues to stay elevated, overall earnings growth is likely to slow. Companies will either have to gradually increase prices, tighten their operational costs, or simply operate with lower margins in the near term," he further stated.