Explained: How crude oil price swings could delay India Inc.’s earnings revival and impact stock market returns

If you belong to the group of investors who believe that the end of the West Asian war will swiftly drive crude oil prices lower and trigger a sustained bull run in the Indian stock market, brace yourself for disappointment.

The hope of healthy stock market returns driven by an earnings recovery is now hanging by a thin thread, thanks to soaring crude oil prices.

Brent crude remains above $100 per barrel, fanning fears that the appealing story of Indian economic growth is on the cusp of taking a serious hit.

Brent oil June futures (June contracts) surged over 45% in March, and what's even worse is that they are still rising due to the US-Iran war.

Crude shock to the Indian economy

The Indian economy is significantly exposed to the macroeconomic risks emanating from higher crude oil prices, as the country is the world's third-largest importer of crude oil. It meets about 85-90% of its oil requirements through imports.

Higher crude oil prices can inflate India's import bill, widen its current account deficit (CAD), derail its fiscal deficit targets, pressurise the currency, stoke inflation, and aggravate foreign capital outflows.

According to brokerage firm Motilal Oswal Financial Services, a $10-per-barrel increase in crude could cause a 30–40 basis-point decline in India's GDP growth.

CAD may expand from 1.1% of GDP at $70 per barrel to 2.0-2.4% if oil averages $90–100 per barrel, while a $10 per barrel rise in oil prices could drive inflation up by 30–50 basis points, with CPI potentially approaching 5% if crude averages $100 per barrel, the brokerage firm said.

"The deterioration in macro outlook would stem mainly from the higher oil prices, the weak rupee, and the consequent adverse impact on trade and the inflationary pressures. If the current situation stretches for a couple of months, then it may result in a contraction of the GDP growth by 0.50 % or thereabout," said Joseph Thomas, Head of Research at Emkay Wealth.

"What is more important is the restoration of normal oil and gas supply, in the absence of which the impact on certain vital sectors will be quite drastic. In any case, even if normalcy returns today itself, the normalisation process may extend to another 4 to 6 weeks," Thomas added.

The concern is that even if the US-Iran war ends in the next few days, global crude prices may remain elevated for a longer period due to the damage to production and export infrastructure.

Economists at global financial firm Goldman Sachs have lowered India’s 2026 GDP growth forecast by 1.1% to 5.9% and raised CPI (Consumer Price Index) forecast by 70bps due to the country's significant vulnerability to energy shock.

They also anticipate a wider current account deficit of 2% of GDP, further weakness in the Indian rupee (INR), and a 50 bps interest rate hike in 2026.

Delayed earnings recovery for India Inc.?

Elevated crude oil prices have deepened concerns that India Inc.'s expected earnings recovery will be delayed, prolonging a period of subdued stock market returns.

Goldman Sachs has lowered India Inc.'s earnings growth forecasts by 9 percentage points over the next two years to 8% and 13% for the calendar years 2026 and 2027, respectively. Prior to the West Asia conflict, the financial firm expected earnings growth of 16% and 14% in 2026 and 2027, respectively.

Goldman Sachs has downgraded Indian equities to "marketweight" from "overweight", noting worsening macro and slowing earnings growth.

The global financial firm has lowered Nifty's 12-month target to 25,900 from 29,300 earlier, implying a modest 13% local return, based on earnings growth of 8% in calendar year 2026 and 13% in the next year and 19.5 times target PE.

Anirudh Garg, Partner and Fund Manager, INVasset PMS, highlighted that historical precedents, such as the post-Arab Spring supply adjustments, suggest that restoring damaged oil infrastructure can take several quarters, not months. So, from an earnings standpoint, the implications are material.

"Corporate India’s margin recovery—expected to gather pace into FY27—hinges on stable input costs and improving demand. Elevated energy prices can erode margins for sectors like paints, aviation, chemicals, and FMCG, while also dampening discretionary consumption through inflationary pressures," said Garg.

"Analysts have been building in a gradual earnings CAGR of 12–15% over FY25–27 for Nifty companies, but persistent cost pressures could push this recovery out by a few quarters. While India’s macro fundamentals—robust tax collections, stable banking balance sheets, and capex momentum—provide a cushion, a prolonged energy shock risks delaying both macro stability and earnings normalisation rather than derailing them outright," Garg said.

What should investors do?

Think long term. While the near-term market outlook remains hazy amid heightened uncertainties, the recent correction has brought valuations across segments to fair levels, making them attractive long-term bets, given India’s strong long-term outlook.

"External economic conditions are deteriorating due to the war, and it is likely to become more adverse in the short term. But the economy and markets would start bouncing back the moment the war stops," said G Chokkalingam, the founder and head of research at Equinomics Research Private Limited.

Chokkalingam highlighted that on a PE basis, the current market level is highly attractive.

"We find the current valuation of the whole market very attractive. Individually, many high-quality SMC (small and mid-cap) stocks have become very attractive," said Chokkalingam.

The founder of Equinomics Research believes that India remains a highly promising story for the next 10 years (2026-2036).

"We firmly believe that a great long-term India story is awaiting the investors. Over the next 10 years, oil prices will crash due to a substantial renewable energy supply. India will meet 60% of the chip (semiconductors) demand locally. Data centres would have taken off in a big way. Import substitutes would have grown in a big way due to aggressive PLI schemes, and thereby, India would save a huge chunk of forex reserves," Chokkalingam said.

It is difficult to predict how geopolitical situations will evolve in the near future, let alone in the long run. Markets can never discount uncertainties fully. However, historically, markets have rewarded investors with a disciplined approach and a long-term vision.

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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.