Nithin Kamath has warned that India could face a difficult inflation environment this year if a developing El Nino weakens the monsoon at the same time as global oil prices remain elevated because of the Iran conflict, a combination that may eventually force the Reserve Bank of India to tighten monetary policy.
In a post on X, the Zerodha founder said 2026 was "turning out to be a case of when it rains, it pours". Kamath pointed to forecasts of below-normal rainfall this year as a major risk for food inflation and rural incomes.
"Every few years, the Pacific Ocean warms up abnormally, and that phenomenon is called El Niño. When it happens, India's monsoon weakens," he said, adding that the India Meteorological Department has already projected rainfall 6% below normal for 2026.
While the number may appear small, Kamath noted that nearly 70% of India’s annual rainfall comes during the monsoon season and around 60% of Indian farmers remain dependent on rainfall rather than irrigation.
"If history is any guide, we may have a terrible year ahead," he said, adding that in around 60% of El Niño years since 1951, India recorded below-average rainfall. He referred to 2009, when monsoon rainfall dropped to 78% of the long-period average, the weakest monsoon in 37 years.
A weak monsoon typically affects agricultural output, particularly crops such as rice, pulses, sugar and vegetables, which can then push up food inflation. Food prices remain one of the most important drivers of India’s retail inflation basket because of their large share in household spending.
Kamath said the inflation risks from a weak monsoon are now coming at a time when global energy markets are already under pressure because of escalating tensions in West Asia. He described the Strait of Hormuz situation as an unholy mess, referring to the disruption in one of the world’s most important energy shipping routes.
"Trump's war with Iran has effectively shut a channel that carries 20% of the world's oil and 20% of its LNG," Kamath said. India imports around 80-90% of its crude oil requirements and nearly half of its natural gas consumption, making the economy vulnerable to sustained spikes in global energy prices.
Kamath said the Indian crude basket averaged $114 per barrel in April and around $106 in May, levels significantly above India’s comfort zone. Higher crude prices affect India through multiple channels including fuel inflation, transportation costs, fertiliser expenses and the current account deficit.
Economists have long viewed the combination of rising food inflation and high oil prices as one of the most difficult macroeconomic scenarios for the RBI because it simultaneously hurts growth and fuels inflation.
"When food and energy prices rise together, the RBI cannot stay quiet," Kamath said. "Beyond a point, it will have to start hiking rates, and that is when a bad situation starts to feel like a crisis."
The RBI has largely maintained a cautious policy stance over the past year while balancing inflation concerns against slowing global growth and domestic demand conditions. However, a sustained rise in food and fuel inflation could complicate the central bank’s policy trajectory in the coming months.
Higher interest rates generally increase borrowing costs for companies and consumers, affecting sectors such as housing, automobiles and capital expenditure. Markets have also become increasingly sensitive to inflation risks because elevated global crude prices and geopolitical tensions are already weighing on investor sentiment.
