Stress due to higher oil prices
If the oil price is assumed to remain close to $90 a barrel in fiscal year 2022-23, the current account deficit would reach a decadal level of 2.8% of GDP, while the price of crude oil reached $110 a barrel. barrel could lead to a deficit of 3.5% of GDP, according to Jefferies.
Chris Wood added, however, that the strong recovery in non-oil and gas imports pointed to the economic recovery after the Delta Wave. The Indian economy could reach 7% growth in FY23 if the oil price remains around $100 a barrel.
Jefferies estimates India will grow at 7.5% in real GDP terms in FY23, up from an estimated 8.5% in FY22.
Jefferies expected the government to pass on higher oil prices to end users now that the state assembly elections are over. A full pass-through of the oil price hike would add 60-80 basis points to retail inflation.
Energy, real estate equities in focus
“GREED and fear would see any oil sell-off triggered by a negotiated settlement in Ukraine as an opportunity to add energy, given the fundamental lack of supply,” Chris Wood wrote in the March 17 notebook.
Chris Wood also added that Jefferies will continue to maintain significant exposure to real estate stocks in India’s long-term portfolio, as the long-term call remained intact.
Fed had no choice but to raise rates
Given the latest inflation data in the US and the war in Ukraine that has led to a rise in commodity prices, the US Federal Reserve had no choice but to start normalizing monetary policy.
Chris Wood also noted that while the Biden administration blamed the rise in oil prices on Russia, the reality was that the “inflation genie was out of the bottle long before the Russian invasion of Ukraine.”
Jefferies said political pressure on the central bank has increased to deal with the rise in oil prices and that “the credibility of the US central bank is at stake.”
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