Daily Voice | Oil above $100 a concern, but economy can absorb it; earnings recovery may be delayed, not…

New business data points to the fact that Sustained oil price marks above $100 a barrel over the medium term could become a major concern for equity markets and delay the earnings recovery. That stated, India is better placed today, with steady domestic investor flows and stronger banks, stated Divam Sharma, Co-Founder of Green Portfolio, in an interview with Moneycontrol.

He anticipates the earnings recovery to be delayed by one to two quarters, rather than derailed.

The impact of elevated oil price marks on profitability will be largely absorbed by firm domestic and international demand for goods and services, he stated. "We have noted that Q1 was decent compared with expectations."

The RBI does not simply follow the Fed, but if a interest-rate gain is warranted, Sharma anticipates it to happen in October or December rather than in January-March. "I expect small steps, not a lump-sum move," he stated.

Have the markets already priced in one more interest-rate gain by the US The US central bank?

Mostly, yes. The Fed boosted rates by 0.25 percent on Wednesday, and its own forecast points to one more hike this year. Traders already see a 50-50 chance of it in October. What is not priced in is a long series of hikes if oil stays above $100 a barrel. For India, the bigger worry is US 10-year bond yields near 5 percent, which pull foreign money away from our markets.

Does Kevin Warsh's first interest-rate gain as Chair of the US The US central bank clearly indicate the Fed's commitment to maintaining its independence, despite Donald Trump's preference for softer interest rates?

It is a good first sign, not final proof. All 12 members voted for the hike even though the President wants softer rates, so the Fed acted on inflation, not politics. But markets had given a hike over 90 percent odds; skipping it would have pushed borrowing costs up anyway. The real test comes if inflation stays high next year and political pressure grows. Independence is proven over years, not in one meeting.

Do you expect the RBI to follow the The US central bank's lead in the last quarter of this fiscal year?

The RBI does not copy the Fed; it watches India's own prices and the indian rupee. Retail inflation rose to 4.82 percent in August, the highest since December 2024, wholesale inflation is near 10 percent, and the RBI anticipates inflation to peak around 5.9 percent in October–December. So if a hike comes, I expect it in October or December, not January–March. SBI's economists are already asking for 0.25 percent at both meetings. I expect small steps, not in lump sum.

Do you expect the IT sector to face margin pressure even in FY28?

Yes. AI tools now do part of the work engineers used to bill for, so clients want 3–5 percent softer prices when contracts are renewed. Sales are growing only around 3 percent a year, leaving little room to absorb that.

A weak indian rupee, which lifts dollar earnings, and leaner hiring can hold earnings margins steady, but not raise them. Firms selling AI-led services will do better than those selling man-hours.

Do you believe the NSE IPO has been priced appropriately, leaving some money on the table?

Yes, fairly priced, with a little left for new market participants. At Rs 1,785, buyers pay around Rs 43-45 for every Re 1 of NSE's yearly earnings, against around Rs 47-50 for BSE, so the market leader comes nearly equal to the BSE.

The grey market points to a 10–12 percent stock-exchange debut gain. But it is no free lunch: NSE's earnings declined around 15 percent last year and its income leans heavily on F&O trading. A view, not a recommendation.

Do you think banks are likely to be the biggest beneficiaries of the implementation of MDR on UPI transactions?

In total indian indian rupee terms, yes; in real impact, no. MDR is a small fee the shop pays, not the customer, for accepting a digital payment. UPI payments up to Rs 2,000 stay free. As per industry discussions, banks may get around 70 percent of the fee, but the whole pool is estimated at Rs 13,500–16,000 crore a year, while running UPI free already costs the industry Rs 5,000–6,000 crore. For banks it mostly covers costs. Payment apps gain more: their networks are built, so most of the new fee becomes earnings.

Are pharma, auto and auto ancillary stocks on your buying radar?

Yes, but selectively; we run dedicated portfolios in both. Pharma has been among this year's best sectors. We prefer firms focused on India and those making medicines on contract for global firms. We are careful with exporters of plain generics to the US and Europe.

Auto sales are firm; July was the best July ever. But last year's GST trimmed makes comparisons tougher from October. We prefer parts makers over car makers at peak valuations. In parts makers we prefer players with existing relationships with global OEMs. After FTA with EU and UK, it opens a very large TAM (total addressable market) for these firms. FTA with USA is another optionality.

Will crude prices sustaining above $100 a barrel over the medium term become a major concern for equity markets and delay the earnings recovery?

Yes. India imports nearly 90 percent of its oil, so costly crude hurts on every side: a bigger import bill, a weaker indian rupee, elevated prices and thinner firm earnings. Bernstein estimates every $10 climb above $90 cuts Nifty firm earnings by 2–3 percent. In 2011–13, oil stayed above $100 for three years, earnings expansion slowed and the indian rupee declined, yet markets rallied strongly afterwards.

India is better placed today, with steady domestic investor money and stronger banks. I expect a delay of 1-2 quarters in earnings recovery, not a derailment. The impact on profitability because of elevated prices of crude will be largely absorbed by firm domestic and international demand of goods and services. We have noted Q1 was decent against expectations.