Rising crude, gas and coal prices will push up inflation and slow down growth

MUMBAI: The sharp rise in crude oil, natural gas and coal prices is extremely difficult for stock markets and the Indian business community, which are still reeling from the potential impact on the bottom line over the next few quarters. Consumers are frustrated by their rising costs behind fuel which raises inflation concerns.

"If global prices for crude oil, natural gas, coal and electricity remain at current levels until December 2021 and rise modestly by 3 per cent by March 203, a 1 per cent rise in retail inflation (CPI) is likely to have an impact," Nomura said in a note.

Nomura estimates that a 10 per cent rise in crude oil prices could push up inflation in India by about 0.5 per cent, the current account deficit could grow by 0.5 per cent of the country's GDP and the GDP growth rate could fall by about 0.2 per cent.

"We expect industrial production to shrink in September / October due to shortage of semiconductors and coal," he said. GDP growth in the fourth quarter could go down by about 0.01 per cent, compared to our base year of 7.5 per cent. Thus, we maintain the growth estimates of 7.5 per cent and 7.5 per cent for 2021 and 206, respectively, but we are seeing negative risks for the following year.

"The risk of severe winters in the US and Europe, a steady decline in inventory and limited supplies from OPEC could push the price of Brent KD to 100 a barrel," he said. "If the winter in the Northern Hemisphere is severe, high fuel prices could last a long time," he said.

While Goldman Sachs analysts expect crude oil prices to reach ડો 70 a barrel in the next few months, Bank of America Securities also expects Brent oil to touch ૧ 100 a barrel for the first time since 2014.

Indian equities were downgraded from overweight to neutral

MUMBAI: Nomura has downgraded Indian equities from overweight to neutral, saying there is no return on risk. Stating that the performance of equities in China and other Asian countries has been lower than in India in the current year, the brokerage house has suggested diverting funds.

Given the appraisals, we are now seeing a weak return on risk. All the positive factors seem to be met, while the challenges are raising their heads. That is why we are downgrading India to neutral, ”Nomura said in a note.

India's valuation seems to have gone up a lot. Of the Indian stocks in the MSCI index, 5 per cent are trading higher than the average valuation of stock stocks before or after 2014.