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Are high oil prices always bad for market sentiment? No, suggests data
Even with oil prices ruling at $110 and $108/bbl in FY13 and FY14 respectively, the Nifty 50 managed to post a gain of 7.3 per cent and 18 per cent in each of these two fiscal years, data shows.
GDP (gross domestic product) growth grew at a healthy clip of 5.5 per cent (in FY13) and at 6.4 per cent (FY14) back then.
Triple-digit crude oil prices, said G Chokkalingam, founder and head of research at Equinomics Research, were common between 2007 and 2014. Things, he said, changed from 2014 onwards as the US increased production and shale gas came into play. China, too, shifted focus on services rather than solely manufacturing, which calmed oil markets.
'There were some structural changes. Alternate sources of energy such as solar and wind also took centre-stage besides crude oil post 2013-14. Oil and stock markets had started to discount higher shares of these two sources back then. A higher oil price is not always bad for the market sentiment, unless they run away too fast, too soon and stay elevated for a long period of time,' Chokkalingam said.
In FY22 as well, the Nifty50 index moved up around 19 per cent when crude oil prices averaged $81/bbl during the fiscal year, up 81 per cent as compared to FY21. Even with a rise (crude oil price) of around 19 per cent the following year to an average of $96/bbl, the fall in the Nifty50 index in FY23 was a modest 0.6 per cent.
Dangerous complacency
That said, global stock markets, said Nigel Green, CEO of deVere Group, a global consulting firm managing nearly $12 billion in assets under management (AUM), are showing a 'dangerous complacency' in response to the sharp escalation of military conflict between Iran and Israel.
'This isn't resilience, it's a mispricing of risk. Investors are leaning into a narrative that no longer fits the facts.' 'Gold and oil are reacting appropriately to heightened geopolitical risk. Equities are not. Volatility remains artificially low. That divergence should concern every serious investor,' he cautions.
Israel's recent counterstrikes mark a significant intensification, targeting infrastructure inside Iran—a move seen by many as a shift away from proxy warfare and toward direct state conflict.
The risks to global energy markets, analysts said, are growing. The Strait of Hormuz, which Iran could disrupt, carries roughly 17 million barrels of oil per day—nearly 20% of global supply. If the conflict persists, some even see oil prices hitting $150/bbl in the worst-case scenario.
"Even the threat of closure or interference would likely push oil well beyond $100 per barrel, reigniting inflation and altering the current trajectory of interest rate policy in developed economies. If energy prices rise sharply from here, that disinflation story evaporates. Rate cuts could stall. Market momentum could reverse,' Green said.
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Time of India
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