In its latest India strategy report, the brokerage flagged that a surge in oil prices amid Middle East conflict could have a lingering impact on the economy, similar to past episodes in 2008, 2011 and 2022. While the ceasefire provides some relief, it cannot fully reverse the macro risks posed by elevated energy prices.
BNP Paribas cut its 2026 Nifty target by 11% to 25,500, citing weak earnings growth and moderation in valuation multiples. The report underlined that higher crude prices could strain India’s fiscal and trade balances, potentially forcing government spending cuts and consumption cuts.
Foreign institutional investor (FII) sentiment has also weakened, with India seeing limited participation in the global AI-driven rally and facing concerns about slowing earnings growth. Additionally, structural risks such as AI-led disruption in service employment could weigh on medium-term growth.
Against this backdrop, the brokerage has changed its sectoral stance, which is defensive and favors segments that have historically performed better during periods of high crude prices. He prefers staples, telecom and utilities, citing their resilience, while maintaining a positive outlook on private sector banks over PSU lenders and NBFCs. IT services, after recent reforms, are also seen as value offerings, aided by currency tailwinds.
On the other hand, sectors sensitive to rising input costs – including auto, cement and consumer durables – are expected to face pressure. Infrastructure may also suffer due to a potentially tight financial environment.
Historically, oil shocks have been directly correlated with weak macro indicators and equity market performance. BNP Paribas noted that elevated crude prices have resulted in sustained pressure on inflation, currency and consumption over a prolonged period, with markets typically underperforming for several quarters.
Despite these near-term risks, valuations have been revised to more reasonable levels, offering selective opportunities for investors to take a medium-term view.
Among its top 9 stock ideas, BNP Paribas has highlighted Mahindra & Mahindra, Infosys, Persistent Systems, Britannia Industries, Titan, Bharti Airtel, HDFC Bank, ICICI Bank and Axis Bank as preferred picks. These companies are seen as relatively well positioned to deliver earnings resilience and navigate macro headwinds.
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At the same time, the brokerage flags select underperformers including TVS Motor, Wipro, AU Bank and IndusInd Bank, where upside appears limited in current conditions.
(disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. (These do not represent the views of the Economic Times.)
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