Rising crude oil prices, coupled with ongoing geopolitical tensions in West Asia, pose the risk of a broader cycle of earnings downgrades if Brent crude prices remain above $100 a barrel, according to Ajay Garg in an interview with businessline. He cautioned that Indian markets are transitioning into a phase of “sustained macro risk.”
Garg emphasized that the current market correction is not solely due to rising oil prices but is a result of a shift from a benign risk environment to one characterized by sustained macro risks. He particularly noted the duration and intensity of these issues, pointing out that uncertainty remains regarding stability around the Strait of Hormuz.
The rising crude prices are impacting domestic inflation through increased fuel costs. Garg stated that government policy indications aimed at conserving foreign exchange—such as reducing gold imports and limiting overseas spending—signal that economic stresses are becoming domestically transmitted, prompting markets to respond more sharply.
Although some of the oil price pressures have already been priced in since the onset of the conflict in late February, India, as a net oil importer, remains exposed to the implications of persistently high crude prices. He indicated that elevated fuel costs will strain margins and keep inflation persistent, which may dampen consumption. Sectors such as aviation, paints, chemicals, and oil marketing companies (OMCs) could be particularly vulnerable.
Garg mentioned that while Brent crude prices in the range of $90 to $100 per barrel are manageable through price adjustments, sustained prices above $100 could exacerbate inflationary pressures, affect the rupee, and widen the fiscal deficit. This scenario could lead to a broader cycle of earnings downgrades in the upcoming quarters.
Despite these challenges, the Reserve Bank of India (RBI) has already accounted for high crude prices, projecting an average of $85 per barrel while anticipating a real GDP growth rate of 6.9 percent for FY27. Should crude prices stabilize around $95 per barrel, India’s projected GDP growth would remain at 6.7 percent for the same fiscal year.
Garg believes that, despite near-term risks, Indian equities retain a premium valuation compared to many emerging markets, buoyed by robust domestic fundamentals, consistent retail inflows, improving manufacturing activity, significant infrastructure spending, and a pro-growth governmental stance.
So far, recent quarterly earnings have displayed relative stability, indicating resilient domestic demand conditions. He noted that if geopolitical situations stabilize and crude prices decrease, market recoveries could follow, alongside a moderation in inflation fears and improved liquidity conditions. This could catalyze greater investment in energy transition themes, such as power, renewables, and electric vehicles (EVs), thus transforming a near-term challenge into a long-term opportunity.
The brokerage remains optimistic about sectors like financials, capital goods, defense, pharmaceuticals, and power, driven by strong structural demand, government spending, and enhanced credit growth. On the other hand, sectors sensitive to crude oil prices and global uncertainties, including aviation, chemicals, and information technology, may continue to face pressure.
In terms of foreign investment, easing valuation pressures and India’s long-term growth potential render the country appealing to foreign investors. Nevertheless, the sustainability of foreign institutional investor (FII) inflows will ultimately hinge on crude oil prices, rupee stability, and earnings growth.
Regarding the primary market outlook, Garg expects robust IPO activity throughout FY27, supported by a pipeline of nearly ₹1.75 lakh crore in SEBI-approved companies, healthy domestic liquidity, and sustained retail participation. He suggests that investor demand will center on quality businesses with reasonable valuations, although overall market performance is likely to impact primary market issuances.
Published on May 24, 2026.
