Surging crude could widen India's CAD to 3.2%, bring down GDP growth to 8%, says ICRA; JM Financial sees up to 22% upside in GAIL, ONGC
Oil price has been surging unabated amid escalating tensions between Russia and Ukraine.
Oil price has been surging unabated amid escalating tensions between Russia and Ukraine. Oil prices jumped to their highest levels since 2008 to $130.50 on Monday after US and allies were reported mulling ban on oil imports from Russia. In In first few minutes of trade on Monday, brent crude too reached $139.13 a barrel.
As the US and allies plan to ban Russian oil imports, Russia on Monday warned that it could stop the flow of gas through pipelines to Germany.
As per Reuters, Russian Deputy Prime Minister Alexander Novak had warned that oil prices could more than double to $300 a barrel if the United States and its allies banned imports of Russian oil.
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"Crude oil price which shoot up USD 130 per barrel is one of the key risk to India's economy as India import nearly 80% of their oil requirement. Supply disruptions and trade shocks emanating from the Russia Ukraine conflict, fiscal pressure due to increase in crude oil prices and widened CAD will weigh on India's growth in FY23," Arijit Malakar- Equity research analyst at Ashika stock broking.
He says western countries pounding strict sanctions on Russia is making the situation worse. "The soaring commodity prices are likely to erode the margins of corporate in coming quarters and that will affect corporate earnings growth and that pose a big risk to Indian equity market," he adds.
Meanwhile, ICRA has said that an average crude oil price of US$130/bbl in FY2023 would hurt India's macro-outlook as it may lead to widening of CAD to 3.2% of GDP, crossing 3% of GDP after a decade.
"The current account deficit (CAD) is likely to widen by approximately US$14-15billion (0.4%ofGDP) for every US$10/bbl rise in the average price of the Indian crude basket. If the price averages US$130/bbl in FY2023, then the CAD will widen to 3.2% of GDP, crossing 3% for the first time in a decade," it said.
It also said that elevated commodity prices and pessimistic sentiments in global markets will impact INR negatively.
As per ICRA's baseline forecast, the average CPI and WPI inflation could be around 5% each in FY 2023 and it estimates large downside risk for GDP growth for the same financial year at 8%. Earlier, the government has marginally cut GDP growth target from 9.2 per cent to 8.9 per cent for the current financial year.
Stocks to benefit
Though the geopolitical tension threatens India's macro data for FY 2023, it also puts oil & gas stocks like ONGC, Oil India and GAIL in sweet spot.
Brokerage house JM Financial has reiterated its buy call on ONGC with target price of Rs 230, Oil India (Rs 300) and GAIL (Rs190).
This translates into an upside of 22% for ONGC on its previous closing price of Rs 187.05, an 18% for GAIL on its yesterday's closing price of 161.70 and 20% upside for Oil India against its closing price of RS 249.50 on March 7.
"ONGC and Oil India are the key beneficiaries of higher crude prices as every USD1/bbl rise in crude price results in our valuation rising by 2-4%, it said.
(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)
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01:13 PM IST