A rise in oil prices – if driven by a surge in demand/consumption – is a positive for equity markets, according to analysts. Analysts at Jefferies estimate that every $10 per barrel (bbl) rise in the Brent oil price raises India’s trade deficit by around 40-50 basis points (bps). Yet, they believe that the equity markets should be able to digest the recent spurt.
“A $70/bbl of crude would have a 100-120 bps impact on current account deficit (CAD). Improving domestic demand on a low base would drive CAD to 1.5 percent in fiscal 2021-22 (FY22) versus a 0.7 percent surplus this year. However, we still expect the balance of payments (BoP) to be a positive around 1.2 percent as capital account (FDI, ECB and NRI deposits) should see over $80 billion surpluses,” wrote Mahesh Nandurkar, managing director at Jefferies in a recently co-authored note with Abhinav Sinha.
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