India outperforms EM peers amid crude oil correction, softer Brent key catalyst for Nifty
Brent crude futures recently underwent a 17% correction before witnessing a rebound, primarily due to increased supply from OPEC+ and sluggish demand from China, which caused prices to retreat from their April 2024 peak of USD 91.2 per barrel. This decline
in crude prices, combined with stable macroeconomic fundamentals and the potential for monetary easing, is likely to boost India's market valuations, significantly lowering the probability of a major market correction in the short term.
Elara Securities, a leading domestic brokerage, maintains a positive outlook for the Indian market over the coming three months. Their analysis highlights that India has historically shown strong resilience during periods of crude oil price corrections,
especially when compared to other emerging markets (EM). Between FY08 and FY20, a period characterized by an annualized 12% drop in crude prices, the Nifty index gained 5%, while MSCI India outperformed MSCI EM by 67 basis points (bps) in dollar terms.
During shorter intervals of crude price corrections, the Nifty posted a median performance of 4%, with MSCI India outpacing MSCI EM by 8 percentage points (ppt).
Sectoral Dynamics: A Mixed Performance Landscape The impact of crude price corrections has varied across sectors. Domestic cyclicals such as Capital Goods (5.5%), Banks (4.2%), and Autos (5.8%) have delivered robust returns during these phases.
Defensive sectors, including FMCG (7.5%) and Pharma (4.9%), have also consistently outperformed, benefiting from strong domestic demand, which insulates them from broader global economic challenges. However, high-beta sectors like Metals (13.4%) and
Real Estate (3.8%) have struggled, often bearing the brunt of risk-off sentiments caused by global demand slowdowns and recessionary fears during periods of crude price volatility.
Beneficiaries of Lower Input Costs Certain sectors stand to gain substantially from declining crude prices, as lower input costs boost profitability. Building Materials, FMCG, Chemicals, and Pharma are among the key beneficiaries, with earnings
growth of 17%, 14%, 12%, and 10%, respectively, from FY08 to FY20. While sectors like Logistics, which are heavily reliant on fuel costs, see revenue growth during these periods, they often face margin pressures due to intensified competition and
pricing challenges.
Conclusion India's market and economy have historically demonstrated robust performance during
periods of crude oil price declines, consistently outperforming other emerging markets. With stable macroeconomic conditions and reduced input costs benefiting core sectors, the outlook for India's market remains optimistic in the near term. Defensive
sectors and domestic cyclicals are expected to lead the market, while high-beta sectors may face headwinds due to ongoing global uncertainties. Backed by historical trends and sectoral resilience, India appears well-positioned to navigate this period
of crude price corrections, offering a promising outlook for investors