The return of crude above $100 a barrel is getting markets nervous.
It is an obvious red flag for India: the country imports bulk of its crude, so a sustained oil shock can widen the current-account deficit, weaken the rupee, push up inflation and squeeze corporate margins. It can also force the Reserve Bank of India to keep monetary policy tighter for longer – something the RBI Governor articulated in the latest MPC by changing the policy stance from neutral to ‘calibrated tightening’.
But history offers an important qualification: $100 oil is not, by itself, a sell signal for Indian equities.
Brent averaged $92.18 a barrel in January 2008, when the Sensex peaked at 21,206 on January 10. Crude then crossed into sustained triple-digit territory, averaging $103.64 in March, $122.80 in May and $132.32 in June, before peaking at about $145 during the summer.
The Sensex, however, was already falling before crude's sustained surge. It eventually lost 52.45% in calendar 2008.