Key insights
- Citigroup cut its Nifty 50 valuation multiple due to the potential impact of the Middle East conflict on India's economic growth. Higher oil prices and supply chain disruptions could negatively affect GDP, inflation, and the current account deficit. Citi downgraded automakers and highlighted potential earnings impacts for Reliance Industries and HPCL. While focused on India, global energy price shocks can influence US equities.
Investing.com -- Citigroup cut its Nifty 50 valuation multiple to 19 times one-year forward earnings from 20 times and set a December 2026 target of 27,000, warning that a Middle East conflict now in its second week could shave up to 30 basis points off India’s economic growth this fiscal year.
The brokerage, in a recent note, said the Strait of Hormuz blockade, with ship traffic down as much as 90%, has disrupted 6-7 million barrels per day of Gulf oil production and is rippling through fertiliser, petrochemical, LPG and LNG supply chains, going "beyond a simple energy “price” shock to a “quantity” disruption."
Assuming roughly three months of disruption, Citi sees 20-30 basis points of downside risk to its FY27 real GDP growth forecast of 7.1%, 50-75 basis points of upside risk to its average CPI forecast of 4%, $25 billion of upside risk to the current account deficit, and around 0.1 percentage point of GDP upside pressure on the central fiscal deficit.
"In a bear-case scenario of sustained crude prices above US$100/bbl., FY27E NIFTY EPS likely sees downgrades to single-digit YoY growth (currently ~15%), multiple remains subdued at 18x," the report said.
Citi modelled Brent at $80, $100 and $120 per barrel. At $100 per barrel for three months, domestic fuel prices face upward pressure of 10 Indian rupees per litre, inflation rises 15-20 basis points, and the current account deficit widens by $20 billion. At $80 per barrel, no retail fuel price change is expected.
The GCC accounts for 38% of India’s remittances and 14% of goods exports, amplifying the shock beyond energy.
Fertiliser prices are up 30-40% from end-February levels, petrochemical prices have spiked more than 30%, and shipping costs on select routes have risen 15-20%.
Citi downgraded automakers to neutral and removed Mahindra & Mahindra and Mahanagar Gas from top picks.
Reliance Industries could see 5-12% FY27 earnings upside from stronger refining cracks. HPCL faces the sharpest downside, every $5 per barrel rise in oil combined with a $5 per barrel rise in refining cracks could cut its earnings by roughly 25%.
Interglobe Aviation’s EBITDAR could fall more than 75% if crude hits $100 per barrel without fare increases.
On monetary policy, Citi maintained its call for a Reserve Bank of India pause at the April MPC meeting, noting headline inflation is currently at 3.2% against 6% at the start of the Russia-Ukraine war, providing more policy flexibility.