Indian economy can withstand crude oil prices of $120 a barrel, but the stock market may still react negatively, said Anish Tawakley, CIO, DSP Mutual Fund, drawing a distinction between the economy's ability to absorb higher oil prices and the impact on equities.
Speaking on the sidelines of Moneycontrol's Mutual Fund Summit - Delhi edition 2026, during the session ‘Inevitable India, Uncertain World', Tawakley, Deepak Shenoy, CEO, Capitalmind Mutual Fund, and Sachee Trivedi, Founder & CIO, Trident Capital Investments, discussed the impact of higher crude prices on India, the ability of the economy to absorb the shock and what it could mean for equity marketsIndia's forex reserves enough to cushion higher oil impact
Tawakley said India's ability to deal with higher crude prices is very different from what it was in the 1990s because the country now has significant foreign exchange reserves. “India needs five million barrels of oil a day and can use the forex reserves to keep buying,” he said.
Tawakley said India's ability to deal with higher crude prices is very different from what it was in the 1990s because the country now has significant foreign exchange reserves. “India needs five million barrels of oil a day and can use the forex reserves to keep buying,” he said.
He contrasted this with countries that do not have adequate reserves to pay for their oil imports. “Countries which don't have reserves are the ones which will suffer because they will have to ration fuel. In the 1990s, we had to cut our oil consumption because we didn't have the reserves. If you maintain the oil consumption that we have today, your output doesn't have to fall dramatically,” he said.Tawakley also pointed out on how India's current economic position gives it more room to absorb the impact of higher crude prices. “The economy is in good shape, the economy can withstand $120 of oil. Demand is growing and there is still spare capacity, normally you get a good run of earnings. I am not pessimistic on earnings over the next two years. Returns should be reasonable,” he added.
Economy can handle oil, but markets may still take a hitShenoy of Capitalmind Mutual Fund agreed that India's economy has the ability to absorb higher crude prices, but said investors should not assume that equities will remain insulated. “The economy can handle oil, but the markets may still have a negative impact,” he said.Shenoy said the short-term direction of crude is particularly difficult to predict because geopolitical developments can cause sharp moves. “Oil short term cannot be predicted. It could go to $140, it could go to $160,” he said. At the same time, he said there are forces that could eventually bring additional supply into the market. "Oil has structural downside in pricing but cyclical upside due to geopolitics."He pointed to the possibility of sanctioned oil returning to the market because of political incentives and the supply response that can emerge when crude prices remain high. “If oil prices go higher, US shale gets more profitable at higher prices,” he said.His longer-term view on crude was more benign despite the possibility of a sharp near-term spike. “I think oil can return to $80 in six months,” he said.Magnitude of oil price increase is importantTrivedi said the impact of higher crude cannot be judged simply by looking at the absolute price. The starting point and the magnitude of the increase are equally important. “If oil goes from $65 to $100, that's a 50 percent increase and that's very hard to absorb,” she said. But she said the situation is different when crude is already at elevated levels. “If oil goes from $108 to $120, that's 10-12 percent. That's something which is anticipated and something that people are mentally prepared for,” Trivedi said.She also brought Europe into the discussion, saying the region could face significant pressure from elevated energy costs. “Europe is also feeling the pain and they may compensate households. Winter may be difficult,” she said.Trivedi said the impact of oil should also be viewed through the direction of earnings revisions. “The second derivative is improving,” she said, referring to the trend in earnings. “The upgrades and downgrades ratio has changed,” she added. This could mean that some of the negative news has already been reflected in market expectations. That's the reason she believes that a sharp downside risk is capped and the upside has turned flat for markets.
Economy can handle oil, but markets may still take a hitShenoy of Capitalmind Mutual Fund agreed that India's economy has the ability to absorb higher crude prices, but said investors should not assume that equities will remain insulated. “The economy can handle oil, but the markets may still have a negative impact,” he said.Shenoy said the short-term direction of crude is particularly difficult to predict because geopolitical developments can cause sharp moves. “Oil short term cannot be predicted. It could go to $140, it could go to $160,” he said. At the same time, he said there are forces that could eventually bring additional supply into the market. "Oil has structural downside in pricing but cyclical upside due to geopolitics."He pointed to the possibility of sanctioned oil returning to the market because of political incentives and the supply response that can emerge when crude prices remain high. “If oil prices go higher, US shale gets more profitable at higher prices,” he said.His longer-term view on crude was more benign despite the possibility of a sharp near-term spike. “I think oil can return to $80 in six months,” he said.Magnitude of oil price increase is importantTrivedi said the impact of higher crude cannot be judged simply by looking at the absolute price. The starting point and the magnitude of the increase are equally important. “If oil goes from $65 to $100, that's a 50 percent increase and that's very hard to absorb,” she said. But she said the situation is different when crude is already at elevated levels. “If oil goes from $108 to $120, that's 10-12 percent. That's something which is anticipated and something that people are mentally prepared for,” Trivedi said.She also brought Europe into the discussion, saying the region could face significant pressure from elevated energy costs. “Europe is also feeling the pain and they may compensate households. Winter may be difficult,” she said.Trivedi said the impact of oil should also be viewed through the direction of earnings revisions. “The second derivative is improving,” she said, referring to the trend in earnings. “The upgrades and downgrades ratio has changed,” she added. This could mean that some of the negative news has already been reflected in market expectations. That's the reason she believes that a sharp downside risk is capped and the upside has turned flat for markets.
Source: Network18
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