India In Sweet Spot Amid Easing Crude Oil Prices And Global Shifts

(MENAFN- AsiaNet News)

India's Economic Outlook Amid Global Shifts

India remains in a favourable economic position amid easing crude oil prices, strong foreign investment inflows and shifting global dynamics, which could support the Indian rupee and domestic financial markets, according to Anindya Banerjee, Head of Commodities Research at Kotak Neo. Speaking to ANI, Banerjee shared his outlook on crude oil prices, currency movements, monetary policy and global capital flows, highlighting that India could benefit from improving geopolitical conditions and a shift in global investment sentiment.

Outlook for Crude Oil Prices

Addressing the outlook for crude oil, Banerjee said Brent crude prices are likely to remain range-bound amid ongoing geopolitical uncertainties, with the immediate floor estimated at USD 75–80 per barrel and the upside extending to USD 115–120. "The $70 to $75 level is still far away because Brent crude is currently trading around $91–92 per barrel. For prices to reach those levels, I think the West Asian crisis would have to be completely resolved," he said.

"I think the floor is currently around $75–80, while the upside is $115–120. So, we are looking at a range of $80–110 for the time being. Anything above or below that range would indicate that prices are getting stretched, unless we see either a resolution of the crisis or a complete escalation," he added.

Currency Movements and RBI Intervention

On the currency front, Banerjee said the Indian rupee remains undervalued relative to its peers, with the currency trading around 93.5 against the US dollar in the offshore market. Commenting on the Reserve Bank of India's (RBI) intervention in the foreign exchange market, he said the central bank is likely to continue purchasing dollars periodically while balancing several economic objectives, including inflation, exports, imports and rupee liquidity.

"I think the RBI generally adopts a combination of both approaches. It continues to buy dollars because it has short positions in the forward market. The central bank does this because currency management serves several objectives, including exports, imports, inflation, rupee liquidity and its own balance sheet management," he said.

However, Banerjee indicated that the rupee could appreciate further if geopolitical tensions in West Asia ease over the coming months. "At 93.5, where the rupee is currently trading in the offshore market, I think it is still undervalued compared with its peers. If the situation in West Asia improves in the coming weeks and months, I think we could see the rupee appreciating to levels of 91 or even 90 against the US dollar," he said.

Inflationary Pressures and Interest Rates

Despite the positive outlook for the Indian currency, Banerjee cautioned that further interest rate hikes by both the US Federal Reserve and the RBI remain possible due to persistent risks from global energy prices. "I think one more rate hike is due from both the Federal Reserve and the RBI because oil price volatility has persisted for some time now," he said.

Highlighting the risk of renewed inflationary pressures, he said another escalation in the West Asian conflict could push crude oil prices back towards USD 110 per barrel. "It is too early to say that inflationary pressures are over. It would take just one more war or another escalation for oil prices to return to $110 per barrel. So, I think it is too early to conclude that external inflationary pressures have disappeared," he said.

However, he noted that appreciation of the rupee could help ease imported inflation, while a substantial decline in crude oil prices could alter expectations regarding interest rate hikes next year. "If we see a substantial decline in crude oil prices, expectations regarding interest rate hikes next year could change. But for December, it looks like there could be one more rate hike," Banerjee said.

Global Investment Sentiment and Political Factors

On the broader commodity outlook, Banerjee said developments in West Asia would remain a key determinant of global crude oil prices and inflationary pressures. "If we see another round of military action, nothing will have fundamentally changed. Oil prices could move back above $100 per barrel, which would be inflationary and negative for the global economy," he said.

Conversely, he indicated that a resolution of the conflict could bring crude oil prices down to USD 75–80 per barrel, improving the outlook for the global economy. Banerjee further highlighted that easing crude oil prices and foreign investment inflows are creating favourable conditions for the Indian currency.

"As far as the rupee is concerned, there is scope for appreciation because crude oil prices have declined. Additionally, we are seeing foreign investment inflows. Around $4.5 billion has come into India this month alone," he said.

He also pointed to a shift in global investment sentiment, with investors increasingly diversifying their investments beyond artificial intelligence (AI)-focused stocks, potentially benefiting markets such as India. "Previously, India was not part of the AI trade. However, India is a well-diversified market, which is a fact. Now, we are seeing a significant amount of money being invested outside the AI sector, and India is benefiting from that shift," Banerjee said.

Referring to political developments in the United States following the midterm elections, Banerjee said potential friction between the Trump administration and Congress could create prolonged policy uncertainty, weighing on the US dollar while supporting the Indian rupee.

"Following the midterm elections, we could now be looking at a prolonged period of extreme political uncertainty. There could also be a degree of policy paralysis because of potential friction between the Trump administration and Congress, including the Senate," he said. "That would be very positive for the rupee and negative for the US dollar," he added.

Banerjee said these factors could support further appreciation of the Indian currency over the next couple of months, provided there is no renewed escalation in the West Asian conflict. "Keeping these factors in mind, I think the rupee could appreciate over the next couple of months. However, this outlook assumes that we do not see a resumption of the war. If the conflict resumes, the situation could change," he said.

Summing up his assessment of India's position amid changing crude oil prices, currency movements and global investment dynamics, Banerjee said, "Yes, absolutely. We are in a sweet spot."

(Except for the headline, this story has not been edited by Asianetnews Editorial staff and is published from a syndicated feed.)

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