A report suggests that Indian markets are likely to see a smart recovery as the crude overhang diminishes and price-earnings premiums decrease. Emkay Global Financial Services forecasts the Indian rupee to strengthen towards Rs 91 per US dollar and the 10-year government bond yield to ease to around 6.65 per cent from the current 6.83 per cent, with normalization expected over two to three months. The report highlights that the recent 5% decline in the Nifty was mainly due to sustained FPI selling, but this trend is expected to reverse, positioning India as a favorable investment opportunity in the region.
A Brent average of $80 per barrel in FY27 could lead to a GDP growth reduction for India to 6.6%, along with an increase in inflation and the current account deficit to 4.3% and 1.7% of GDP, respectively. If Brent surpasses $100 per barrel, a more adverse terms-of-trade shock could elevate the CAD/GDP beyond 2.5% and result in a balance-of-payments deficit of about $85 billion. Despite the rise in oil and natural gas prices, they are still below levels that would typically correspond to a shock of this magnitude and duration, according to the report.
The report mentions that a Brent price of $85 per barrel would be largely manageable, but crossing the $100 per barrel mark would have a more pronounced macro impact. The simulation model indicates that at current oil prices, the government may need to reduce excise taxes by approximately Rs 19.5 per liter for diesel and petrol on average and cover additional LPG subsidy costs estimated at Rs 1 trillion to offset OMC losses fully. Such a tax cut would result in a fiscal cost of nearly 1.1% of GDP.
