Crude oil at $120 could drag earnings growth to 11% from 16%: UBS flags 10 stocks to weather oil shock
Why it matters: Rising oil prices threaten India's earnings growth and market stability, urging investors to re-evaluate portfolios.
- UBS estimates that crude oil at $120 per barrel could reduce India's FY27 earnings growth by 5 percentage points, from 16% to 11%.
- India's high dependence on energy imports (85% of crude, 50% of LNG) makes it vulnerable, especially with the Strait of Hormuz effectively shut, impacting import bills and the rupee.
- Market valuations have re-rated 10% since February-end, but UBS does not expect a deep correction similar to COVID-19, even in a prolonged conflict.
- UBS's stock selection strategy focuses on three buckets: defensive names (e.g., Sun Pharma, Reliance), stocks with limited underlying impact despite uncertainty (e.g., Hindalco, Adani Ports), and structural winners that are now more attractive (e.g., Apollo Hospitals, ICICI Bank).
- A 1% depreciation in the rupee could add another 1% drag on equities due to inflation risks and potential foreign outflows.
UBS warns that sustained high crude oil prices, potentially reaching $120 per barrel, could significantly slow India's FY27 earnings growth from 16% to 11%, exacerbated by the country's heavy reliance on energy imports and a weakening rupee. Despite potential market corrections, UBS doesn't anticipate a severe de-rating like the COVID-19 era, instead favoring defensive stocks and recent corrections.
