Brent crude above $100 a barrel may unsettle Indian markets in the near term, but it is unlikely to derail the broader investment case for the country, according to Harsh Gupta Madhusudan, Chief Equity Strategist at Ionic Asset.

While higher oil could pressure earnings and the rupee, he argues that the impact may be less severe than feared, with India’s growth backdrop, valuations and external balances providing a buffer even as global yields and geopolitical risks remain elevated.

Edited excerpts from a chat on how macros may impact markets:

‎The rupee has been under sustained pressure despite India’s relatively strong growth fundamentals. Do you see currency depreciation as a structural feature for India now, and where do you see the rupee over the next 12–18 months? What would change that trajectory?

In the very short term, INR trajectory is linked to crude prices and to some extent to DM long-end yields as well as the AI trade, though RBI will strongly defend around 96 or 97, I suspect. But over the next year or two, I expect INR appreciation given that we have just seen the steepest REER fall in three decades, and the FCNR buffer is enough of a bazooka to stop further speculative or excessive hedging activity. More fundamentally, the Indian current account is benign (surplus ex-gold), and capital flows will return even with just rupee stabilization on a rolling basis. US REER itself has cyclically peaked out in 2025 after around fourteen years of appreciation. With CNY appreciating over the last year and JPY/KRW joining recently, I expect this Asian FX strength to show up in INR as well.

FPIs returned strongly in July and August, only to pull out money again this month as crude, US yields and the dollar rose. Do you think FPIs will end up in CY2026 as net buyers?

Unlikely, in CY26 terms, though going forward numbers could again depend on crude, global yields and the AI trade. Indian earnings momentum is seemingly back and economic growth remains strong. Reported trailing multiples on blue chips at less than 20 look attractive, and the broader market seems very reasonable at around 22 times.

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India has historically commanded a valuation premium because of superior growth and macro stability. With global capital becoming more expensive and geopolitical risk rising, how much of that premium is still justified? Are Indian equities genuinely attractive versus other emerging markets at current valuations?

If you compare Indian trailing multiples to those in the US, the multiples are already lower. Compared to other emerging markets, the trailing multiples remain higher, but the ratio is lower than average. Comparison with forward multiples of the overall EM basket is different as growth is predicted to be much higher elsewhere, particularly in Korea and Taiwan, but we must remember this growth is cyclical and concentrated in the AI supply chain, and no valuation is done only on the basis of the next one or two years. From 2002 to 2025, the last full dollar cycle, India gave one of the best dollar returns of any major market, be it developed or emerging.

Oil is again above $100 a barrel amid geopolitical tensions. How serious is this for the India investment thesis as well as earnings risk for India Inc?

Brent at $100 is certainly a major irritant in the short term as mentioned, but to compare with say 20 years earlier in inflation-adjusted terms would require around a 40% cut on that number. I do not think we were losing major sleep with $60 crude in 2006 (in fact, the average for that year was around $65). Yes, it will also have an impact on earnings, but perhaps not as serious as feared, and distributionally it will depend on the public policy response. By the way, US 10y in 2006 was around 4.8% on average, almost the exact number we have today. The larger issue is the debt and demographic trends outside India, but even more so, the AI trade has sucked in all incremental capital and mindshare, and India has no serious AI story on the supply side. The diffusion side is strong, maybe even underappreciated.

India has been signing and negotiating trade agreements as global supply chains are realigned. Which Indian sectors could emerge as the biggest earnings beneficiaries of this shift over the next five years, and which sectors risk losing out as tariff barriers come down?

We will have more winners than losers with our recent FTAs as this time we have focused more on the developed Western markets and the Middle East as opposed to East or South-East Asia where we have more of a competitive dynamic. If the carbon adjustment talks with the EU to fructify well on the specifics, I expect the winners' list to further increase. So broadly, labor-intensive exports could ideally do well given how these FTAs are structured, heavy industries if we get the carbon adjustment right, and the broad auto sector also seem to be well positioned. In a few niches, such as high-end alcoholic beverages, there could be some more risk.

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What are the broad earnings expectations from the Q2 earnings season, and do you think the base effect will become a problem for some of the GST beneficiaries from Q3 onwards?

High frequency indicators have been a tad lower for Q2 of this fiscal than Q1 in some measures, though overall strength is palpable. And eventually the base effect will also kick in. But on the whole, we expect earnings to be strong. If crude prices rise further, then as discussed, public policy will dictate the impact on OMCs etc., but overall strong topline growth and reasonable bottom-line growth can be expected as of now.

The domestic market is now facing supply pressure from IPOs, FPOs/OFS, QIPs as well as selling by early investors, PEs and VCs in newly listed companies. What does that mean from a liquidity perspective in the secondary market? Will that supply keep Nifty in check?

Supply is real but broadly priced in. Liquidity is not a big concern right now. In July and August, foreign net buying was roughly half and half in primary and secondary. With FCNR stabilization buying time and staving off panic, given that the fundamentals of the rupee/valuations/growth are in place, I do not think normal supply will cause any real problems provided the domestic inflows remain strong, which they are likely to. Ultimately, supply and the primary market are the real job of capital market intermediation - and on a similar note, I do not worry much about net FDI being low in the last couple of years (since PE/VCs making money in India and MNCs listing here are good from a long-term perspective provided our fundamentals are in balance as they are.