Crude oil above $80 to weigh on Indian markets; banking, auto to shine

Indian equity markets are sensitive to crude oil prices above USD 80, which could impact inflation. However, Kotak Securities' Shrikant Chouhan notes that banking, auto, and metal sectors are expected to post healthy growth in Q1 earnings.

Indian equity markets are expected to remain highly sensitive to global crude oil prices in the near term as sustained rise in Brent crude above the USD 80 per barrel mark could weigh on market sentiment, inflation and macroeconomic stability, however, banking and auto sector are expected to post healthy growth, said Shrikant Chouhan, Head Equity Research, Kotak Securities.

Impact of High Crude Oil Prices

In an exclusive interview with ANI, Chouhan noted, "If crude prices sustain above the USD 80 mark, we can expect further pressure on India's current account deficit as well as the balance of payments. It could also become a reason for higher inflation in the country," he said. He, however, expressed confidence that crude is unlikely to remain above USD 80 for an extended period and said a return to the USD 70-72 range would be favourable for the economy and markets.

Market Outlook and Q1 Earnings

Commenting on Wednesday's sharp market correction, Chouhan said the sell-off highlighted the sensitivity of domestic equities to fluctuations in crude oil prices and geopolitical developments. Despite the near-term volatility, he remains constructive on the broader market outlook, citing expectations of in-line first-quarter corporate earnings. He noted, "...if we consider the overall earnings and the overall performance of the market, then based on the Q1 earnings...based on the expectations for Q1 earnings, we are of the view that it should be like a little bit as per the expectations."

Sector-Specific Performance

As per Chouhan, there is no major downside across sectors except oil marketing companies (OMCs), "where earnings could come under pressure if crude prices remain elevated," he said.

Chouhan expects banks, metal companies and automobile companies to perform well in the current earnings season, while remaining particularly bullish on the two-wheeler segment. He said "...we are expecting banks, auto, as well as metal companies. They should do well," adding "For auto companies, we are specifically bullish on 2-wheelers."

Future Projections and Valuations

Looking ahead, he said market direction will depend largely on external developments. If geopolitical tensions ease and crude prices soften, benchmark indices could rally towards the 25,000-25,500 range. However, if uncertainty persists and crude remains above USD 80 per barrel, markets could gradually slip towards the 23,000 level.

He added that, based on FY28 earnings estimates, Indian equities are trading at around 16-16.5 times forward earnings, making current valuations attractive for investors with a medium- to long-term investment horizon. (ANI)

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