Oil Drop Eases Inflation Worry as Indian Shares Seen Higher

Indian shares are expected to open higher Wednesday, with the Nifty 50 futures on the Singapore Exchange trading up 0.2%.

The trigger is oil. Brent crude has fallen for four straight sessions, settling near $71 a barrel on Tuesday. That is a level not seen since late 2021. For India, which imports roughly 85% of its crude, a sustained drop in oil prices directly lowers the import bill and eases pressure on the current account deficit.

Traders said the oil slide is the dominant factor this week, outweighing domestic cues. The Reserve Bank of India left rates unchanged last week, as expected, and stuck to its neutral stance. The market had already priced that in. What it had not priced was a $5-a-barrel drop in crude over the same period.

The lower oil price also feeds into the inflation outlook. India's retail inflation ran at 5.1% in February, above the RBI's 4% target but below the 6% upper tolerance band. A cheaper crude basket means lower transport and manufacturing costs, which could pull the headline number lower in coming months. That in turn would give the RBI more room to cut rates later in the year.

Not all sectors benefit equally. Oil marketing companies, which buy crude and sell refined products at government-set prices, see their margins improve when crude falls. Refiners with large crude-processing capacity also gain. Airlines, another big fuel consumer, get a direct cost break. On the other side, upstream producers like ONGC see their realisations shrink when crude drops.

Foreign portfolio investors have been net sellers of Indian equities in March, offloading about $3 billion worth of shares. The oil-driven relief could slow that outflow, traders said, especially if the rupee stabilises. The rupee has been under pressure from a strong dollar and rising U.S. yields. A lower oil bill reduces the dollar demand from importers, which helps the currency.

The broader market remains cautious. The Nifty 50 is down about 3% from its all-time high in September. Valuations are still above long-term averages, and earnings growth has been patchy. The oil drop removes one headwind but does not fix the others.

For now, the session open looks positive. Whether it holds depends on whether oil stays down and whether the buying is broad-based or concentrated in a few oil-sensitive names. The next domestic data point is the March GST collection, due early next month. The next global one is the U.S. core PCE inflation print on Friday.