UBS: $120 Crude Could Cut FY27 Earnings Growth to 11%
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- UBS estimates that a 20% increase in crude oil price would compress Indian FY27 earnings growth by about 1.5 percentage points, and at $120 per barrel the growth could slow from 16% to roughly 11%.
- UBS notes that India imports about 85% of its crude oil and nearly 50% of its LNG, with roughly half of oil imports and 60% of LNG shipments passing through the Strait of Hormuz, which is currently effectively shut.
- UBS observes that Indian markets have re‑rated about 10% since February‑end, and in past stress episodes valuations typically corrected to around one standard deviation below the five‑year average, but a deep correction like during COVID‑19 is not expected.
- UBS recommends defensive stocks such as Sun Pharma, Reliance Industries, Bharti Airtel and NTPC, as well as stocks caught in uncertainty (Hindalco, Adani Ports and SEZ, Godrej Consumer Products) and structural winners (Apollo Hospitals, ICICI Bank, SBI Life).
- UBS points out that a 1% depreciation of the rupee against the U.S. dollar could add about a 1% drag on Indian equities, and that oil price rises of about 55% since the conflict’s start and a 3.5% rupee weakening together imply roughly an 11% market impact.
- UBS expects the impact on March 2026 quarter earnings to remain manageable due to inventory buffers, but sectors like airlines, oil marketing companies and agrochemicals are likely to face more immediate cost pressures.
Why it matters: Investors in Indian equities face a tighter earnings outlook, especially in sectors vulnerable to fuel costs, while defensive stocks recommended by UBS may see relative outperformance; the rupee’s depreciation and higher import bills add further strain on market returns and could pressure dividend yields.
