Mumbai (Maharashtra) [India], August 18 (ANI): Amid the Brent crude hovering near USD 90-91 per barrel due to US-Iran friction and Strait of Hormuz tanker disruptions, Devarsh Vakil, Head of Prime Research at HDFC Securities, assessed the immediate earnings impact, noting that 'Indian corporates have more or less discounted that these prices are not going to be a major concern for earnings'.
According to Vakil, non-linear earnings downgrades will occur 'unless crude oil goes beyond 100 dollars and remains steady at a much higher level around 100, 110, or 120 dollars'.
On macro disconnects, Vakil expects WPI inflation (around 9.8 per cent) to trend lower toward CPI levels (around 4.45 per cent), stating, "I don't see any limiting any scope for further divergence. I think they are likely to ease going forward, as the pressure on energy and the pressure on the food subsides."
He praised the RBI's Foreign Currency Non-Resident (FCNR-B) deposit policy, noting, "The response has been overwhelming," with expectations that "by the time October 30th comes, there will be more than 60-70 billion dollars coming through this scheme".
Vakil added, "This scheme has significantly bolstered India's external buffers. It has supported the rupee." Regarding market strategy, he advised against aggressively pivoting into export cyclicals, emphasising that "fundamentals have improved" and that "we are quite attractively valued on around 17, 18 times FY28 earnings."
Shrikant Chouhan, Head of Equity Research at Kotak Securities, offered a tighter threshold for crude, warning, "Crude prices will impact earnings in the long run if they sustain above the USD 85 mark. Above USD 85, it starts impacting our current account deficit, balance of payments, and eventually inflation."
He added that if crude surpasses USD 105, "a rate hike would have to be considered much earlier."
Chouhan highlighted that sticky food inflation will directly compress corporate margins, warning, "This will impact companies in the distribution and consumption businesses... it will impact the FMCG sector primarily, as well as distribution."
He added that auto, cement, and oil marketing companies would also remain under pressure.
On currency and capital flows, Chouhan noted, "SIP flows are going to remain on the bourses for a longer time because investors have realised that entering the direct market to make money isn't easy."
Regarding FCNR-B, Chouhan stated, "This move helped the currency strengthen from 97 to 95 levels and will support our markets for at least the next 12 months," though he cautioned that structural challenges persist due to heavy import reliance on crude, semiconductor chips, and gold. (ANI)
Strong FCNR-B inflows and stable valuations support markets as crude crosses USD 90/barrel: Experts
