India's low-inflation story at risk if crude prices see sustained rise: Kranthi Bathini of WealthMills Securities

Kranthi Bathini, equity strategist at WealthMills Securities

Indian markets have been under heavy selling pressure for the past two sessions, with the Middle East tensions affecting the already weak investor sentiments on Friday. Crude oil prices have surged nearly 13 percent, with Brent now trading above $83 per barrel—posing a fresh concern for oil-import-reliant economies like India.

Amid this backdrop, Kranthi Bathini, Equity Strategist at WealthMills Securities, says that any further escalation or retaliation from Iran could push oil prices even higher, dampening market sentiment in the near term.

Bathini also pointed out that investors are currently adopting a wait-and-watch approach due to the geopolitical uncertainty. A sustained rise in crude prices, he warned, could upset India’s inflation trajectory—just as the country celebrated a six-year low of 2.8 percent CPI inflation in May.

Edited excerpts below:

Israel has attacked Iran—another war risk for the markets. How are you viewing these developments?

Yes, markets are once again witnessing a correction due to this fresh geopolitical escalation. Every time markets attempt to sustain above the 25,300 mark, some unexpected event—domestic or global—seems to disrupt that momentum.

Now, it’s come in the form of Israel attacking Iran, a development that could lead to a larger geopolitical crisis and have broader repercussions for global equity markets. We're already seeing a broad-based correction across regions—Asia-Pacific and even Europe yesterday.

So overall, market sentiment is currently a bit sluggish. One of the key concerns is crude oil, which had been supportive for Indian markets for a while. But now, crude is up nearly 13 percent—an unusual spike in recent times—and that's adding pressure.

When such geopolitical risks flare up, crude tends to surge. While crude oil remains in a long-term bear market—which is good for emerging markets like India—these short-term flare-ups give it wings. If crude sustained above $80 per barrel, it could disturb India’s inflation equation. That would challenge the RBI’s current accommodative stance, especially after the central bank recently provided a boost by keeping rates low.

On the domestic front, monsoon trends are equally important. While we had an early onset, its progress has been patchy. Any delay or abnormal pattern could also impact the markets.

In short, we need to track both crude oil and monsoon progress carefully. Geopolitical tensions are, of course, beyond our control—but how they evolve over the next couple of weeks will be crucial. Historically, Indian markets have recovered strongly after sharp declines triggered by such events. Those who buy during times of maximum pessimism have often made good returns when normalcy returns.

Any meaningful dip in Indian markets, therefore, could be a good opportunity—especially for medium- to long-term investors.

Crude has jumped 12% following Israel’s attack on Iran. Retaliation seems possible. Are markets pricing in that risk yet? What are we anticipating?

Any further escalation will definitely put more pressure on Indian markets. We saw something similar about 18 months ago during the Israel-Gaza conflict, when crude rallied from $90 to $100 per barrel, creating headwinds for Indian equities. But back then, markets showed resilience.

This time, however, Iran is directly involved—and that’s more significant, considering its role in global crude supply. India has historically bought oil from Iran, and trade ties have been strong, including payments in rupee terms.

So yes, a deeper conflict could trigger a domino effect on Indian markets. But again, it’s too early to assess how things will unfold. Geopolitical events are inherently unpredictable—what we expect often turns out differently. If tensions escalate further, the negative sentiment could weigh on Indian equities, at least in the short to medium term.

How should investors position themselves in crude-sensitive sectors? How do you see this decline playing out?

Oil marketing companies, which performed well in Q1, might now face margin pressure. Other sectors like paints and industrials could also see some cost impact.
In terms of positioning, it’s important to track how the crude story plays out in the coming weeks.

Meanwhile, domestic-centric sectors like consumption and BFSI look favourable—especially on dips. We have been bullish on defence stocks for a while now. They have seen phenomenal gains in Q1, supported by strong order books and earnings visibility. Any significant correction in these names—triggered by broader market weakness—could offer a great entry point for long-term investors. Infrastructure and engineering also look attractive from a medium- to long-term perspective.

Any sectors you are watching closely in this decline? And any sectors where you recommend staying on the sidelines?

Any correction in Indian markets should be seen as an opportunity. Banking and financials look especially attractive from a long-term lens. IT valuations are also reasonable compared to long-term averages. Once we get clarity on US trade and fiscal policy, we could see renewed momentum in IT.
Engineering, construction, real estate, and consumption—all look promising over a medium- to long-term horizon. If the decline continues, investors should take a staggered approach and buy on dips.

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