In its latest India strategy report, the brokerage flagged that the surge in oil prices amid the Middle East conflict could have a lingering impact on the economy, similar to past episodes in 2008, 2011 and 2022. While the ceasefire offers some relief, it does not fully reverse the macro risks triggered by elevated energy prices.
BNP Paribas has cut its 2026 Nifty target by 11% to 25,500, factoring in weaker earnings growth and a moderation in valuation multiples. The report underlined that higher crude prices could strain India’s fiscal and trade balances, potentially forcing a reduction in government spending and dampening consumption.
Foreign institutional investor (FII) sentiment has also weakened, with India seeing limited participation in the global AI-driven rally and facing concerns around slowing earnings momentum. Additionally, structural risks such as AI-led disruption in service employment could weigh on medium-term growth.
Against this backdrop, the brokerage has shifted its sectoral stance, favouring defensives and segments that historically perform better during periods of high crude prices. It prefers staples, telecom and utilities, citing their resilience, while maintaining a positive view on private sector banks over PSU lenders and NBFCs. IT services, after recent corrections, are also seen as offering value, aided by currency tailwinds.
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On the other hand, sectors sensitive to rising input costs — including autos, cement and consumer durables — are expected to face pressure. Infrastructure could also see headwinds due to a potentially tighter fiscal environment.
Historically, oil shocks have had a direct correlation with weaker macro indicators and equity market performance. BNP Paribas noted that prolonged periods of elevated crude prices tend to result in sustained pressure on inflation, currency and consumption, with markets typically underperforming for several quarters.Despite these near-term risks, valuations have corrected to more reasonable levels, offering selective opportunities for investors willing 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 better positioned to deliver earnings resilience and navigate macro headwinds.
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At the same time, the brokerage has flagged select underperformers, including TVS Motor, Wipro, AU Bank and IndusInd Bank, where upside appears limited under current conditions.
(Disclaimer: The recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)