Smart recovery likely in Indian markets, rupee to rebound to 91 against dollar: Report

A report by Emkay Global Financial Services forecasts recovery in Indian markets as oil pressures ease. The Nifty 50 may stabilise, with rupee strengthening and bond yields softening, though higher crude prices could impact growth, inflation and fiscal balance

New Delhi: A smart recovery is likely in Indian markets as the crude overhang wanes and price‑earnings (P/E) premiums contract, a report said on Tuesday.

Emkay Global Financial Services, in its report, projected the Indian rupee to bounce back toward Rs 91 per US dollar and the 10‑year government bond yield to ease to about 6.65 per cent from 6.83 per cent currently, with normalisation taking two to three months.

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“The Nifty fell 5 per cent in the last three trading sessions, primarily owing to sustained FPI selling. We expect this trend to reverse, and India could emerge as one of the better investment opportunities in the region,” the report said.

However, a Brent average of $80 per barrel in FY27 would trim India’s GDP growth to 6.6 per cent and raise inflation and the current account deficit to 4.3 per cent and to 1.7 per cent of GDP, respectively.

A more adverse terms-of-trade shock, with Brent above $100 per barrel, could push CAD/GDP beyond 2.5 per cent and produce a balance‑of‑payments deficit of about $85 billion. Though oil and natural gas prices have edged higher, they remain well below levels that would typically reflect a shock of this scale and duration, the report said.

Brent at $85 per barrel will be mostly manageable, while the macro impact will be more acute and if prices cross $100 per barrel, the report added.

“Our model simulation suggests that at current oil prices, the government will need to cut excise taxes by around Rs19.5 per litre of average blended for diesel and petrol and absorb extra subsidy on LPG estimated at Rs 1 trillion to fully bear the OMC losses,” it noted.

Such an excise tax cut would entail a fiscal cost of nearly 1.1 per cent of GDP.