Oil price pressures may hit trade and inflation, but macro remains resilient: INVasset PMS' Anirudh Garg

Anirudh Garg is the Partner and Fund Manager at INVasset PMS

• Prolonged oil price pressure may impact trade balances and inflation
• Markets are pricing in a risk premium, not a base-case war scenario
• Escalation risk exists, but sustained conflict is still not the central expectation
• Earnings risk selective at this stage

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According to Anirudh Garg, Partner and Fund Manager at INVasset PMS, the economic cost of a prolonged war would be significant for all stakeholders, including energy exporters, creating a natural restraint. That said, the situation remains fluid.

“Markets are pricing in a risk premium, not a base-case war scenario. Escalation risk exists, but a sustained conflict is still not the central expectation,” he said in an interview with Moneycontrol.

He believes earnings risk is selective at this stage. The concern would increase only if elevated crude prices persist long enough to alter consumption behaviour or corporate investment plans.

For India and other oil importers, prolonged price pressure could impact trade balances and inflation. However, current macroeconomic conditions continue to show resilience, he said.

Do you see the possibility of US–Iran tensions escalating into a full-fledged war?

A full-fledged war remains a low-probability but high-impact risk. The current phase appears calibrated—measured strikes, strategic signalling, and controlled retaliation rather than a declared, open conflict. However, the Middle East has historically shown that miscalculations, especially around proxy forces or maritime incidents, can escalate faster than anticipated.

The economic cost of a prolonged war would be significant for all stakeholders, including energy exporters, which creates a natural restraint. That said, the situation is fluid. Markets are pricing a risk premium, not a base-case war scenario. Escalation risk exists, but sustained conflict is still not the central expectation.

What could be the impact on oil prices and inflation, given the risk to the Strait of Hormuz waterway?

The Strait of Hormuz is strategically critical, carrying roughly one-fifth of global oil trade. Even without a formal blockade, disruptions, tanker rerouting, or higher insurance premiums can lift crude prices sharply. Oil markets tend to overshoot during geopolitical stress before stabilising.

For oil-importing economies like India, sustained crude above comfort levels would transmit into fuel costs, logistics expenses, and eventually headline inflation. The duration of disruption is key.

A short spike affects sentiment; a prolonged supply risk feeds into inflation expectations and policy reactions. Central banks would then face a more complicated growth-versus-inflation trade-off.

Which sectors are likely to be in focus amid the ongoing situation in the Middle East?

Energy and upstream-linked businesses naturally gain attention during crude volatility. Defence and cybersecurity also move into focus as geopolitical tensions increase strategic spending visibility. Shipping and logistics may see higher freight rates but also operational uncertainty.

Conversely, aviation, paint, tyre, and certain chemical segments remain vulnerable to sustained fuel price increases due to margin sensitivity.

Broader consumer sectors could face input cost pressures if crude remains elevated. The differentiation will depend on duration—temporary volatility creates trading opportunities; structural disruption changes earnings assumptions across energy-sensitive industries.

Do you still see the possibility of another 5% correction from here, after which the equity market may stabilize?

A further 5% correction cannot be ruled out if crude prices spike sharply or if global risk appetite weakens. Equity markets tend to react quickly to geopolitical uncertainty, especially when oil volatility influences inflation and currency movements simultaneously.

However, corrections driven by external shocks often stabilise once clarity emerges. If supply disruptions remain limited and energy markets avoid sustained imbalance, equities could find support relatively quickly. The current environment suggests event-driven volatility rather than a structural deterioration in fundamentals. Markets may overshoot on fear before rebalancing toward earnings visibility.

Considering US–Iran tensions, do you foresee additional headwinds for the equity markets that could lead to further instability?

The primary headwind is uncertainty. Higher oil volatility creates pressure across currencies, bond yields, and inflation expectations simultaneously. A stronger dollar environment and rising freight costs could compress global liquidity sentiment.

Additionally, if energy supply chains face temporary friction, input costs across industries rise, which markets immediately discount. Policy reaction risk is another factor—if inflation expectations re-accelerate, rate cut timelines could shift. These layers combined can amplify short-term instability. However, unless the conflict expands regionally or disrupts energy flows materially, instability is likely to remain episodic rather than systemic.

Are you concerned about earnings and economic growth, particularly in light of the Middle East tensions?

Earnings risk is selective at this stage. Fuel-intensive sectors and transport-linked businesses remain more exposed, while broader demand dynamics have not yet shown material disruption. The concern increases only if elevated crude sustains long enough to alter consumption behaviour or corporate investment plans.

For India and other oil importers, prolonged price pressure can impact trade balances and inflation. However, current macro conditions still show resilience. Unless energy markets face structural disruption, growth impact may remain moderate. The focus should remain on duration rather than the headline intensity of geopolitical events.