Indian equity markets are expected to remain highly sensitive to global crude oil prices in the near term, as a sustained rise in Brent crude above the USD 80 per barrel mark could weigh on market sentiment, inflation, and macroeconomic stability. However, the banking and auto sectors are expected to post healthy growth, according to Shrikant Chouhan, Head of Equity Research at Kotak Securities.
Impact of Sustained High Crude Prices
In an exclusive interview with ANI, Chouhan noted that if crude prices sustain above the USD 80 mark, further pressure could be expected on India's current account deficit as well as the balance of payments. He also stated that it could become a reason for higher inflation in the country. However, he 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 Correction and Sensitivity
Commenting on the sharp market correction observed on Wednesday, 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 that based on the expectations for Q1 earnings, the performance should be as per expectations.
Sectoral Outlook: OMCs Under Pressure, Banks and Auto Resilient
According to 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 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."
Market Direction and Valuation
Looking ahead, Chouhan 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.
