India Inc. Braces for Earnings Squeeze as Oil Stays Firm

India's corporate sector is preparing for a significant earnings squeeze as global oil prices remain elevated due to ongoing geopolitical tensions in the Middle East. Surging fuel costs are weighing on sectors that are highly dependent on energy inputs. Analysts warn that the prolonged disruption to oil flows through the Strait of Hormuz is causing a supply-side shock that goes beyond just price pressures according to Bloomberg.

The Nifty 50 has fallen below its 100-week moving average, a key technical support level, signaling continued weakness in Indian equities. Foreign investor outflows have accelerated, with surging oil prices reviving inflation concerns and clouding earnings forecasts. The benchmark index is now trading at its lowest 12-month forward price-to-earnings ratio since April 2023.

Analysts from major brokerages have revised their targets downward. Nomura cut its December 2026 Nifty 50 target to 24,900 from 29,300, citing a potential 15% decline in corporate earnings from the oil shock. Citi also reduced its Nifty multiple to 19 times forward earnings from 20 times, projecting up to 30 basis points of growth risk for India's economy in fiscal year 2027.

Why the Move Happened

The Strait of Hormuz, a critical shipping route for global oil and LNG, has been effectively blocked since US and Israeli strikes on Iran. This has disrupted 6-7 million barrels per day of Gulf oil production and caused a ripple effect across fertiliser, petrochemical, and gas supply chains. India relies on the strait for 20-25% of its oil and 63% of its LNG imports.

India's trade deficit is widening as oil prices rise. Every $10 per barrel increase in crude widens the trade deficit by more than $18 billion annually. With oil up around $30 per barrel from pre-war levels, the combined impact of oil and gas prices adds about $60 billion to the annual trade deficit.

How Markets Responded

Energy-intensive sectors such as ceramics, building materials, and quick-service restaurants are particularly vulnerable. Automakers and consumer durable producers are also bracing for margin compression as input costs rise. Meanwhile, utilities and power producers have shown some resilience as investors seek stable earnings according to Bloomberg.

Consumer staples with pricing power and stronger supply chains are outperforming, while the Nifty pharma sector is leading gains for the year. However, broader market sentiment remains fragile. The Nifty has fallen 8% over the past two weeks, a decline only seen before during the early stages of the Covid-19 pandemic and the Russia-Ukraine conflict.

What Analysts Are Watching

Investors are closely watching how Indian companies absorb the cost of rising oil and gas prices. Oil marketing companies are expected to take the brunt of the hit, given their previous ability to generate large margins. However, the long-term risk depends on how long the disruption lasts. A prolonged crisis would raise insurance premiums and freight costs, hurting Indian exports and corporate margins.

The Reserve Bank of India (RBI) is also under pressure to defend the rupee, which has hit record lows. The central bank's foreign exchange reserves fell by $11.7 billion in the week to March 6, the sharpest drop since November 2024. Traders note that the narrowing spread between government bond yields and swap rates suggests a growing imbalance in the rates market.

The next major event for investors is the US Federal Reserve's March 18 policy decision. Analysts will be watching for clues on how central banks are responding to surging energy costs. The European Central Bank, the Bank of England, and the Bank of Japan will also announce decisions in the coming days according to Bloomberg.

India's government and central bank continue to monitor the situation closely. Officials have secured safe passage for six LPG tankers through the Strait of Hormuz and are working to prevent hoarding and black marketing of fuel. Despite these efforts, supply constraints remain a concern for both households and businesses.