Rising crude oil prices and prolonged geopolitical tensions in West Asia could trigger a broader earnings downgrade cycle if Brent crude sustains above $100 a barrel, Ajay Garg told businessline in an interview, warning that Indian markets are entering a phase of “sustained macro risk.”
“Indian markets are correcting not just because crude is rising, but because the environment has shifted from benign risk to sustained macro risk,” Garg said. “What stands out this time is the duration and intensity, as there is still no clarity on stability around the Strait of Hormuz.”
Higher crude prices are now directly feeding into domestic inflation through fuel price hikes, while “policy signals around conserving forex, such as reducing gold imports and overseas spending, suggest that stress is becoming domestically transmitted, which markets tend to price more sharply,” Garg said.
While a large part of the oil pressure has already been priced in since the conflict began in late February, India remains vulnerable to sustained high crude prices as a net oil importer. “Higher fuel costs will pressure margins and keep inflation sticky. Consumption may soften, while sectors like aviation, paints, chemicals and OMCs remain the most vulnerable,” he said.
Garg said Brent crude in the $90-100 per barrel range remains manageable through deep price adjustments, However, if crude remains above $100 for an extended period, “pressures on inflation, rupee and fiscal deficit begin to intensify,” which could lead to a broader earnings downgrade cycle over the coming quarters.
Still the Reserve Bank of India has already factored in elevated crude prices, assuming an average of $85 per barrel while projecting 6.9 per cent real GDP growth for FY27. Even if crude stays at $95 per barrel, India’s GDP growth is estimated at 6.7 per cent for FY27.
Despite the near-term risks, he said Indian equities continue to command a premium valuation compared to most emerging markets, supported by resilient domestic fundamentals, retail inflows, improving manufacturing activity, infrastructure spending and the government’s continued pro-growth policy stance.
Recent quarterly earnings have also remained relatively stable so far, indicating that domestic demand conditions are still holding up, he said.
If the geopolitical situation stabilizes and crude prices cool down, markets could recover as inflation fears ease and liquidity conditions improve. “This phase could accelerate allocation toward energy transition themes like power, renewables, and EVs, turning a near-term headwind into a long-term opportunity,” he said.
The brokerage remains constructive on financials, capital goods, defence, pharma and power sectors, thanks to the strong structural demand, government spending and improving credit growth. Consumption-oriented sectors could also benefit from GST rationalisation and income tax benefits.
However, sectors highly sensitive to crude oil prices and global uncertainty, including aviation, chemicals and IT, may continue to remain under pressure, he said.
Easing valuation pressures and India’s long-term growth visibility continue to make the country attractive for foreign investors over the medium to long term, but the sustainability of FII inflows will eventually depend on crude oil prices, rupee stability and earnings growth, he said.
On the primary market, Garg said IPO activity is expected to remain strong through FY27, supported by a pipeline of nearly ₹1.75 lakh crore worth of SEBI-approved companies, healthy domestic liquidity and sustained retail participation.
Investor demand for quality businesses with justified valuations is likely to remain in focus, although broader market performance will continue to influence primary market issuances, he said.