Brent crude is hovering near $90 per barrel currently. JM Financial warns that rising crude oil and metal prices may pose a key risk to corporate margins in the first half of FY27. It said that India’s resilient domestic economy may not be enough to cushion the impact. 

“Net-net, the domestic economy remains resilient, but renewed crude pressure and elevated input costs have re-emerged as key risks to inflation and corporate margins in H1FY27E,” JM Financial said.

Crude tops $90, threatens corporate margins 

Brent crude averaged around $83 per barrel in July but crossed $90 per barrel in August amid renewed tensions between the US and Iran. JM Financial noted that the sharp rise in input costs could put pressure on companies across sectors, particularly those that have limited pricing power or are unable to pass higher costs on to consumers. 

The rise in commodity prices comes at a time when domestic inflation has started moving higher.

Headline CPI inflation increased to 4.5% in July, slightly above the market expectation of 4.4%. Food inflation also remained sticky, with monthly food inflation rising to 2.09% from 1.71% previously.

Metal prices add to cost pressures

Metal prices have also remained elevated. Aluminium prices were up 36.1% year-on-year (YoY), while copper prices increased 40.1% YoY, according to JM Financial.

Petcoke or petroleum coke prices have also risen sharply. Domestic petcoke prices were 31.4% higher YoY, while international petcoke prices increased 31.8%.

The pressure is particularly important for industries where raw materials and energy account for a significant share of operating costs. Companies may either have to absorb the higher costs, affecting profitability, or raise prices, which could weigh on demand.

Domestic economy remains resilient

The cost pressures are despite resilient domestic economic indicators in July.

Auto demand remained strong, with passenger vehicle sales rising 30% YoY, two-wheeler sales increasing 29.1% and commercial vehicle sales growing 31.4%. Retail electric vehicle sales surged 67.4% YoY.

Bank credit growth also accelerated to 19.3% YoY in July from 18.6% in June. Deposit growth improved sharply to 15.4% from 13.3%, narrowing the gap between credit and deposits.

Financialisation remained strong as well. UPI transaction value increased 19.1% YoY, while equity mutual fund assets under management rose to Rs 49 trillion. SIP flows remained resilient at around Rs 320 billion.

Bank credit growth accelerates

Banking sector credit growth remained strong. System credit growth accelerated to 19.3% year-on-year in July from 18.6% in June.

Non-food credit growth also increased to 19.1% from 18.3%.

At the same time, deposit growth accelerated sharply to 15.4% from 13.3%. This helped narrow the gap between credit and deposit growth.

The credit-deposit ratio declined to 82% from 83%, although credit growth continues to remain ahead of deposit growth.

Real estate demand remains soft

The real estate sector presented a mixed picture. Pan-India housing sales declined 7% year-on-year, while new launches fell 17%. However, unsold inventory declined 5.1%, indicating improving inventory absorption.

Residential prices continued to rise, increasing 6.6% year-on-year.

JM Financial said housing demand remains soft, but lower inventory levels are helping support prices.