Transcription
Hey, hi friends. So today we will talk about what the impact of this proposed peace deal between the US and Iran will be on the Indian economy, and ultimately, on the Indian stock market. The most important word is a "durable" US-Iran peace deal. If this happens, and "durable" means it will sustain going forward, then it can be very positive for India. The major reason for this is because crude oil prices going down, due to that, inflation numbers going down, and automatically, the rupee getting support because of that. Because if our import bill reduces, if our current account deficit reduces, then that is going to be really positive.
But all these talks about agreements are in the preliminary stages, okay? Because when is this deal going to be signed? This deal is going to be signed on the 19th of June 2026. So until then, we will have to wait and watch, and in between, this narrative war can continue. But what was the immediate market reaction? So, Brent crude oil prices went down by 4 to 4 1/2%. So they have come down to around $83 per barrel. Which is the lowest level since March 2026. Whether it's Nifty, or Sensex, or mid-cap index, or small-cap index, all these indices have gone up by around 1 to 1.5% today. That is a really positive side. And most importantly, the rupee appreciated by almost, almost 50 paise. By 50 paise. So these are all positive things. And if we talk about India's 10-year yield, so that particular yield is also at the lowest level since March, March 25th, March, meaning March 25th. Okay? So these are very positive things.
So now, what could be its impact on the Indian economy? Let's try to understand that a bit. So the first, most positive impact will be a lower oil import bill. So India is a major crude importer. Almost 80% plus of our crude oil needs, we import. Out of that, around 45 to 50% of crude supply, we source from West Asia, meaning the Strait of Hormuz. So the Strait of Hormuz opening, reopening, is quite good for us. Because it will reduce supply and flight risk. So if there is a decline of $10 per barrel in crude oil prices at a sustained level, then India's net import bill reduces by roughly 13 to 14 billion. The current account balance improves by around 3% of GDP. So obviously, all these things will happen. With a lower import bill, inflation numbers in India can also remain lower. Because cheaper crude can bring down the costs of fuel, transportation costs, packaging costs, chemicals costs, and the money required for agriculture, all those budgets. So, that is a positive sign. So, a 10% decline in crude oil prices could reduce the WPI inflation by almost 80 to 100 basis points and CPI inflation by almost 20 to 30 basis points. Today, the WPI inflation number has come out. And the number for the month of May is 9.68%, which is really very high. We have always seen that when WPI inflation becomes high, after that, we see a cascading impact of that in CPI inflation after one, two, three months. So that is not positive. But if this deal happens here, crude oil prices go down, then WPI numbers can also cool off here. So that's why I think we will have to wait and watch. If this deal, this durable deal, really happens here, then that is going to be really positive for the Indian economy.
The third impact, if we look at the economic impact, it will be really positive for the rupee. Because if dollar demand remains lower from the oil marketing companies, then automatically the rupee will appreciate, or at least it will not depreciate the way it was depreciating. So there will be smaller trade deficits because of that. If this deal happens then, and improved foreign investor confidence can also happen here. Currently, the subdued confidence of foreign investors in India is majorly because of our macroeconomic situation. So once that turns up, then automatically, I think foreign investors' confidence will also increase there, and we can start expecting more flows from them. So I think, and most importantly, that the imported inflation, because we are importing a lot of oil and allied products. So accordingly, the imported inflation numbers can be quite lower here. And that will definitely support the rupee. A stable rupee may also help moderate heavy FII/FPI selling that has been happening since, I think last year, 2025 calendar year, meaning if I am not wrong, around ₹1.87 lakh crore happened last year, and even this year, almost, not last year, ₹1.61 lakh crore outflows happened. This year, around ₹2.87 lakh crore in the first five months and 15 days have happened. So that is, if, meaning, a strong rupee can support that these FII outflows etc. can also be controlled to some extent because of that.
More flexibility to the RBI. So it will definitely, if this deal happens, then the flexibility with the RBI will also be a bit more. Why will it be more? Because lower oil-driven inflation and softer bond yields give the RBI greater room. And for what does this greater room give to the RBI? All these things, one, all this means, the RBI can maintain supportive liquidity. The RBI can consider rate cuts also. So that is definitely going to support growth. Then the RBI can avoid aggressive currency intervention. Meaning, if our import bill comes under control from there, then the RBI will not have to do unnecessary interventions to support the rupee. The RBI can support credit and economic growth. So rather than focusing on rupee management, currency management. Then the RBI can focus more on credit growth happening. Loan growth happening. Because of that, economic growth will also increase there. Okay? So these can be all the benefits.
And what else can happen that is good for us because of this deal? That could be fiscal relief. So if crude oil prices remain low, gas prices remain low, then the pressure on the government currently regarding LPG subsidies, or fertilizer subsidies, or fuel-related compensation to oil marketing companies. So they will not have to provide as much support. That will give fiscal relief to the government budget. So all these things, definitely, I think that are going to be positive for our economy.
Now let's talk a bit specifically about the market, or if we talk about sectors, then for oil marketing companies, this deal can be quite positive. For companies like HPCL, BPCL, IOC, for them, oil prices going down is quite positive. Because currently, the government is also bearing some costs, and some costs are also being borne by oil marketing companies. So that's why if crude oil prices go down here because of the deal, then it will be positive for these oil marketing companies. For airlines, like Indigo, which is a listed company, this can be positive. In paints, where derivatives of oil, crude oil, are used. For companies like Asian Paints, Berger Paints, this can be positive. In tire companies, derivatives of crude oil are also used. For companies like MRF, Apollo, etc., this can be positive. For chemicals and plastic companies, where there will be lower crude-based input costs, it will be positive for them. For cement and logistics, this can be positive because of lower freight and energy costs. For banks and NBFCs, lower inflation and yields, and macroeconomic risks can go down here. So that is going to be a positive thing.
Then, I think there can also be some underperformers here. Like ONGC and Oil India, if the crude realization outlook goes down here, then definitely it will be negative for them. For oil producers and exploration companies, this can also be slightly negative in the short term. For IT exporters, this deal, meaning the rupee appreciating, or the rupee not depreciating too much, can be a bit bad for them. And sentiments can also put pressure on defense stocks. Normally, whenever geopolitical risks are seen more, some tensions are seen, then this particular sector performs quite well. Peace deals, this word "peace" is not very positive for defense stocks. Because the more the risks, the more the uncertainty, the more geopolitical, the more benefit we normally see for defense stocks.
So, one thing we need to understand, and it is important to understand the risk as well, friends, is that all these discussions are in the initial framework. It is not yet a fully implemented settlement. Okay? So after this, there will be mine clearances. The mines they have laid in the Strait of Hormuz, Iran will have to clear them. Then discussions on shipping insurance, finalization of its rates, actual risk assessment, and all those things will start. Vessel movement through Hormuz. That's why all these things can take some time. Plus, nuclear negotiations or sanctions relief, these discussions are going to follow over the period of the next 60 days. Okay? So, meaning, one good thing is that both have said it. Last time, it was going on like Donald Trump would say that yes, we are close to a deal, and Iran would say no, nothing like that is happening. This time, both have said that yes, meaning, a deal is happening. So that's a positive side. And that's why I think the markets have also given a very positive reaction to this today. Domestic cyclicals, or banks, or crude-sensitive sectors, they have given a very good positive response here. But I think the sustained rerating will depend majorly on when we see crude oil prices again below $80 per barrel, or below $70 per barrel. Until then, we should not show too much unnecessary over-enthusiasm. But if you are following your financial plans, making investments according to your goals, making investments according to your risk profile, then you should continue doing it. Okay?
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