Indian companies may be the most affected by the Iran conflict in Asia, according to Goldman Sachs, which estimates that a 20% rise in Brent crude oil prices would reduce regional revenues by 2%. Societe Generale expects India’s underperformance to be exacerbated by its high dependence on imported energy, while Natixis calls the country’s assets “most at risk” for the same reason.
India’s $5 trillion equity market has lagged many of its major peers since late 2024 due to weak earnings growth and lack of access to artificial intelligence-related stocks. A rise in the price of oil – the country’s top import – has dampened a renewed recovery in stocks since India’s trade deal with the United States. Analysts expect this to lead to inflation, and weaken the economy and currency.
“With Middle East tensions showing little sign of easing, supply risks remain elevated, leaving room for oil prices to rise in the near term,” said Dylan Wu, research strategist at Pepperstone Group. “India’s heavy reliance on oil imports — mostly from the Gulf — makes its market vulnerable. Prolonged high oil prices could widen the import bill, strain the farm account and the rupee, and put additional pressure on equities.”
BloombergStocks may be under pressure Wednesday as traders return from vacation. The jump in Brent prices had already pressured the Nifty index on Monday, and it closed up more than 1% on the day. If history is a guide, this weakness may continue for some time.
The outbreak of the Russia-Ukraine conflict led to a correction of around 10% in the Nifty in the first half of 2022, Citigroup analysts including Samiran Chakraborty wrote in a note. “A 10% increase in oil prices leads to a 30 basis point upward pressure on inflation and a 15 basis point drop in growth,” they said.
To be sure, some investors are very optimistic about India. BNP Paribas says Indian stocks should do well in the coming months as the risk/reward balance is tilted to the upside. Yet many investors are looking for alternatives to Indian stocks. SocGen recommends going long on Asian-backed Japanese shares while shorting India, while Sanford C. Bernstein expects the Iran conflict to continue the index from Monday’s close of 24,866.
A prolonged rally “could push Nifty below 24,500,” Bernstein analysts including Venugopal Geer wrote in a note. “Specifically, we see high risk for energy, travel and business-related names, and construction companies, meaning the Middle East and North Africa.”
