Demand-driven rise in crude oil prices is good for equity markets: Analysts

Even though the rise in oil prices can strain the fiscal position of an economy, a rise in oil prices – if driven by a surge in demand / consumption – is a positive for equity markets, say analysts. In their recent note, analysts at Jefferies estimate that every $10 per barrel (bbl) rise in the Brent oil price raises India’s trade deficit by around 40-50 basis points (bps). Yet, they believe that the equity markets should be able to digest the recent spurt.

“A $70/bbl of crude would have a 100-120 bps impact on current account deficit (CAD). Improving domestic demand on a low base would drive CAD to 1.5 per cent in fiscal 2021-22 (FY22) versus a 0.7 per cent surplus this year.