Brent crude surges 13%, and European gas jumps 55% amid Strait of Hormuz fears, but SIP and NPS flows continue to support Indian equities
Escalating geopolitical tensions in West Asia, particularly involving Iran and the strategic Strait of Hormuz, could pose near-term risks to India through higher energy prices, though the country’s domestic economic momentum remains relatively resilient, according to a report by Jefferies.
The report highlighted that global energy markets reacted sharply to the developments, with Brent crude rising nearly 13 per cent and European natural gas prices surging around 55 per cent in the week following the escalation.
According to Jefferies, the spike in prices was driven by concerns over a possible disruption in the Strait of Hormuz—a critical global oil shipping route through which a significant portion of the world’s crude supply passes.
Any disruption in this corridor could hit oil-importing economies like India by raising import costs and adding pressure on inflation. India imports more than 80 per cent of its crude oil requirements, making it particularly sensitive to global energy price volatility.
Despite these risks, the report noted that financial markets have so far reacted cautiously, with investors increasingly treating geopolitical shocks as temporary events rather than long-term disruptions.
Jefferies said strong domestic capital flows continue to provide a major cushion for India’s equity markets. Systematic Investment Plan (SIP) contributions averaged around ₹305 billion (about $3.4 billion) per month during the three months to January 2026, reflecting sustained retail investor participation.
In addition, the government-backed National Pension System (NPS) is contributing roughly $1.4 billion per month to equities, a trend that is expected to strengthen further over time.
These steady domestic inflows have helped offset foreign investor outflows and supported market valuations.
The report also pointed to signs of cyclical acceleration in the Indian economy. Loan growth has risen to 13.6 per cent year-on-year as of February 15, up from a recent low of 9 per cent in May 2025.
Corporate performance has also improved, with earnings growth for companies under Jefferies’ coverage accelerating to 18 per cent year-on-year in the December quarter — the fastest pace in eight quarters.
However, Jefferies flagged some longer-term challenges for the Indian economy, particularly the potential impact of artificial intelligence on the country’s IT services sector, which employs around six million people.
AI-driven automation could reduce demand for traditional outsourcing services, posing structural risks to one of India’s largest employment-generating sectors.
At the same time, the report said global supply chain shifts could benefit India, as multinational companies diversify manufacturing away from China and other East Asian economies toward alternative production hubs.
Overall, while geopolitical tensions in West Asia may create short-term volatility through energy prices, strong domestic liquidity and improving economic indicators continue to support India’s growth outlook.
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