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With tensions escalating in the Middle East after Iran attacked Israel, the crude oil prices once again edged toward $100 per barrel.
India is one of the largest importers of crude oil from the OPEC nations with over two thirds of India’s oil coming from OPEC nations. So, what would be the impact of this geopolitical tension on Indian markets?
Cafemutual spoke to fund managers - Avnish Jain, Head Fixed Income, Canara Robeco MF, Christy Mathai, Fund Manager, Equity, Quantum MF, Dhimant Shah, Senior Fund Manager, Equity, ITI MF, Dwijendra Shrivastava, Head Fixed Income, Sundaram MF and Rahul Singh, CIO, Tata MF to understand how the Middle East conflict could impact Indian markets.
Debt
Avnish Jain, Head Fixed Income, Canara Robeco MF
Avnish is of the opinion that there won’t be a significant impact of the oil crises on markets. He said, “Only if the oil prices reach above $100 per barrel, it could have some impact on markets. This could raise inflation and derail the growth momentum. However, we don’t expect any major change and the yield curve is also expected to be range bound and trade between 7.10% to 7.20%.”
Dwijendra Srivastava, Head Fixed Income, Sundaram MF
Dwijendra is of the opinion that high oil prices could be of concern for the Indian economy but right now inflation is expected to stay under control. He said, “India imports two thirds of its oil from the Middle East and some from Russia and the U.S. So, it is crucial for India to manage its supplies efficiently. If the prices are to move up in the coming time, the weightage of petrol and diesel in CPI inflation could increase and lead to challenges in the mid-term. Further sub-par growth of the economy could lead to rate cuts. But in the near term, the Indian markets won’t see much reaction and inflation will be in control.”
Prashant Pimple, CIO, Fixed Income, Baroda BNP Paribas MF
Prashant believes that while the rise in oil prices may lead to inflation, it will not have direct implication on rate current at least for the new future. He said, “We have to keep a close watch on geo political factors like US elections, middle east conflict and Chinese economy as these factors will have direct implication on interest rates and inflation in the medium term.”
Equity
Christy Mathai, Fund Manager, Equity, Quantum MF
Christy believes that current crude prices won’t be a major issue for India. He said, “Import export companies could suffer due to the ongoing conflict in the middle east. The current uptick is not an issue for Indian markets. But if prices go up persistently, it will affect the consumption. Also, the anticipated increase in crude will impact the economy negatively and increase the inflation rates.”
Dhimant Shah, Senior Fund Manager, Equity, ITI MF
Dhimant is of the opinion that the crisis could bring correction in the equity markets. He said that if oil prices stay around $90-$95 per barrel, markets should be able to sustain this price. But if it persists over a long period, it could affect the economy and markets may witness some correction. This could provide a good entry point for investors.
Rahul Singh, CIO, Tata MF
Rahul believes that the current crisis may not affect the markets. He said, “As far as macros are concerned, we have been doing quite good in terms of current account deficit, fiscal deficit and rupee stability. So, higher crude prices will increase the risk of India’s macros becoming less than perfect. As of today, oil prices haven’t reacted much. We have to wait and follow the situation. We are not counting on any corrections unless any major macros parameters are affected.”
