Indian market’s sensitivity to crude oil high; overweight on financial space: JP Morgan

Crude oil took centre stage after Russia invaded Ukraine. While the prices have come down from previous highs of USD 130 levels, the rates still remain volatile given the geopolitical tensions.

James Sullivan, managing director- Asia Pacific Equity Research, on Tuesday, said that Indian market’s sensitivity to crude oil is quite high.

He said, "The driver of inflation, which is largely the energy complex, and in particular oil, and the Indian market's sensitivity to oil, particularly from a current account perspective, is significant and we have to factor that into our expectations moving forward."

Sullivan shed light on consumer spends. He explained that there were heightened domestic savings in the US market which has now normalised, however that wasn’t the case with all global markets including India.

"In terms of the impact on consumer spends in some markets, as we went through the COVID experience, a very heightened level of domestic and household savings, particularly in the United States was seen, which spiked to over 26 percent household savings rates, which is something we haven't seen in the US in a very long period of time," he said.

"That is now normalised, but we still are looking at a very large pool of excess household savings that can now be drawn down to blunt the impact of high inflation at least for a period of time. We don't necessarily see that level of excess savings in all markets, inclusive of India," he mentioned.

Sullivan remains overweight on the financial space in the Indian market.

He said, "In the Indian market, we do remain overweight on the financial space. We do see the potential for positive revisions. It's one of the few sectors in India that really hasn't performed particularly well, so financials will be key overweight for us within the Indian context."

Coming to global markets, He stressed that there are signs of economic weakness across the globe. In this regard, JP Morgan has reduced its global GDP expectations by 1.7 percent, he shared.

On global GDP he said, “JPMorgan has taken down global GDP growth expectations by 1.7 percent; the most extreme revisions have been in Europe where we have taken numbers down by more than 3.6 percent for European growth.”

Sullivan also mentioned that China is the most underweight market in their portfolio.

On China, Sullivan said, “If we look at China, it is one of the most underweight markets in the global investor portfolio. Valuations appear reasonable, but also critically earnings expectations also look reasonable across the industrial complex.”