Get Ready For Earnings Downgrades

EPS estimates are projected to be slashed over next two quarters as inflation hits India Inc.

- V. KESHAVDEV

Vladmir Lenin, Russian communist revolutionary and head of the Bolshevik Party, had once famously said: "There are decades where nothing happens; and there are weeks where decades happen." It took Vladimir Putin, the spy-turned-president, to show the world what the quote meant.

A world that was coming out of a virus-induced crisis is now engulfed in a geopolitical conflict that is no longer confined to Russia-Ukraine borders. The misadventure showed the fragility of global economic interlinkages. Supply chain disruption and commodity price flare-ups have got global central banks fire-fighting their way to tame inflation that is ravaging economies, both developed and emerging. India has been at the receiving end as it imports 85% of crude oil it consumes, resulting in inflationary pressures clouding prospects of robust growth recovery.

India's vulnerability to crude oil is well documented with the central bank estimating that a 10% spike in oil prices can tear down the country's real GDP growth by 20 basis points over the baseline. The worry is that if prices average $100 per barrel against the Budget estimate of $75 per barrel, GDP growth will be slashed. According to rating agency Icra, current account deficit could widen by $14-15 billion (0.4% of GDP) for every $10/bbl increase in the average price of the Indian crude oil basket. Thus, if the basket averages $100 in the current fiscal, the deficit is likely to widen to $85-90 billion, that is, 2.4% of GDP.

The crude oil spike coupled with U.S. Fed rates hikes have led to exodus of foreign investors. In just six months, rising bond yields in U.S. and a strengthening of the dollar saw ₹