Can US midterm outcome bring relief to India? Kotak flags lower crude prices

The outcome of the US midterm elections could bring some economic relief to India by improving geopolitical stability and easing crude oil prices, according to a report by Kotak Institutional Equities. The brokerage expects a more favourable global environment to strengthen India’s macroeconomic position over the coming months, even as corporate earnings provide support to domestic stock markets.

The report said the election results reflected widespread voter dissatisfaction in the United States over rising living costs and inflation. Economic concerns, particularly affordability and the cost of living, had dominated voter priorities in opinion polls conducted ahead of the elections.

Kotak noted that high oil prices, partly driven by the Iran-US war, had been a major contributor to inflationary pressures.

“We note that high oil prices, a fallout of the Iran-US war, has been the primary reason for high inflation,” the report said.

Against this backdrop, the brokerage believes the US midterm outcome could contribute to more stable geopolitics and lower crude oil prices, offering India some relief from imported inflation and external economic pressures.

“In our view, the outcome of the US midterm elections could result in (1) more stable geopolitics and (2) lower crude oil prices,” Kotak said.

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Why could lower crude oil prices benefit India?

India is one of the world’s largest crude oil importers and remains exposed to fluctuations in international energy prices. A sustained decline in crude oil prices could reduce the country’s import bill, ease pressure on the current account deficit and provide relief to domestic inflation.

Kotak expects India’s macroeconomic position to improve significantly over the next few months as crude oil prices return towards normal levels, supported by an anticipated improvement in the global oil supply-demand balance.

The report also noted that crude oil supplies from the Middle East had improved considerably in recent months despite Iran’s blockade of the Strait of Hormuz. However, Iranian oil exports had declined sharply following US restrictions on shipments through the strategic waterway.

At the time of the report, Brent crude was trading at around $99.82 per barrel, while another crude oil benchmark was quoted at approximately $91.52 per barrel.

Lower energy prices could also ease cost pressures for Indian businesses, particularly sectors with significant exposure to fuel, transportation and energy expenses.

Alongside the potential improvement in the global macroeconomic environment, Kotak highlighted the strength of corporate earnings as another positive factor for domestic markets.

Companies in the Nifty 50 reported a 19 per cent year-on-year increase in net profits during the second quarter of FY27. EBITDA growth also remained strong, with a similar trend visible even after excluding the oil, gas and consumable fuels sector.

The brokerage expects net profits of Nifty 50 companies to grow 20 per cent in FY27 and FY28.

“We expect FY2027E and FY2028E net profits of the Nifty-50 Index to grow 20%,” the report said.

Kotak added that the risk-reward balance in the domestic equity market remained favourable, with valuations across most segments ranging from attractive to fair despite the recent market rebound. However, certain investment-related sectors continued to trade at elevated valuations.

What does this mean for India’s economic outlook?

The potential combination of lower crude oil prices, improved geopolitical stability and stronger corporate earnings could provide India with a more supportive economic environment.

For the Indian economy, cheaper oil could help contain inflation, reduce pressure on the external account and improve the operating environment for businesses.

For equity investors, sustained earnings growth could provide greater confidence in the domestic market, even as global geopolitical developments and energy prices remain important variables.