Elevated global crude oil prices exceeding $90 per barrel might significantly affect the earnings of Nifty companies, as per a report by Bernstein analysts. For every $10 increase past $90, Nifty earnings could drop by 2-3%, with a more severe impact at higher price levels. While crude oil’s direct impact on the index is limited, its broader macro effects, including inflation, currency devaluation, and policy responses, become more pronounced at elevated levels.
Within the $60-$90 per barrel range, the impact on earnings is gradual, potentially slowing long-term earnings growth from 10-11% to around 7%. However, once crude oil surpasses $90, the pressure intensifies as rising inflation starts to erode consumption and savings, particularly affecting consumer-oriented sectors. Higher oil prices also lead to a weaker rupee, increasing costs for import-dependent industries like pharmaceuticals, cement, and chemicals, while rising logistics expenses further squeeze margins across sectors.
The report highlighted that at higher crude oil levels, the earnings decline accelerates, with nearly a 4% downside for every $10 increase beyond $90. If crude oil prices reach $120-125 per barrel, the impact could be severe enough to significantly reduce overall earnings. Financial sectors, which contribute almost half of Nifty earnings, are relatively shielded and might even benefit from a higher interest rate environment. IT companies could see limited advantages from a depreciating rupee.
In contrast, consumer sectors and import-reliant industries are expected to bear the brunt of increasing costs and a slowdown in demand. Within the energy sector, upstream companies may profit from higher crude oil prices, while oil marketing firms could face margin pressures. The report cautioned that sustained spikes in crude oil prices pose a significant downside risk to earnings, especially if they remain above the $90 per barrel threshold.
Brent crude futures rose by up to 2%, reaching $111.23 per barrel, near a 52-week high, while the US West Texas Intermediate (WTI) crude surged by 3.53% to around $115.48. On Monday, domestic headline indices displayed negative performance, with Sensex dropping over 500 points to 72,790 and Nifty declining by 150 points to 22,561.
