US-Iran war may not last beyond April: Market may cheer, oil at $60-70 unlikely, says Bernstein

Bernstein on Wednesday said the US may want an off-ramp to the current hostilities with Iran given the massive global impact and losses suffered, saying the next few days will make things clear. While the foreign brokearge believes the market will cheer any such development, it said a structural change has happened already, with the events rendering "permanent damage" to many prospects, as far as this year is concerned. 

"We also believe crude is unlikely to come to the $60-70 levels this year, in sharp contrast to what we have been used to seeing in recent years, this will mean the pressure on rupee will sustain, and the liquidity position, along with RBI’s surging forward book and declining Foreign Currency Assets will constrain the central bank of enough buffers to protect rupee. We see a realistic chance of breaching 98 this year," it said.

Bernstein retained its view that a lack of a support back home, heavy US losses, elevated crude and mid-terms in US this year should eventually put an end to the conflicts, which are unlikely to last beyond April. 

However it said the damage at some of the oil and gas infra means the issue is no longer incidental to the Strait of Hormuz. It said the recovery time may take anywhere from a few days for facilities shut down as precaution to months where facilities have been damaged. 

It expects several nations to up their buying and shore up petroleum reserves once the situation eases. 

"All this means crude is likely to stay elevated this year, even though it returns below $100 a barrel. We see realistic chances of inflation breaching 6 per cent this summer, rate cuts to get pushed for two quarters at the least, and GDP
growth to taper. Taking these into account, we’ve cut the year-end Nifty target to 26,000," it said.

In case of the stock market, Bernstein said the market fall and the potential for a rebound on the end of a war will likely be a key area of investor scrutiny but what no one knows is when the war ends. 

It is a binary call and given the macro, earnings impact the market fall should not be characterized as just due to sentiment. 

"Waiting out for clear signals, in such times, is often the best strategy. We suggest staying away from broader markets till one sees a de-escalatory ramp, which may be coming soon," Bernstein said.