At a time when crude oil price volatility stemming from the US-Iran war has raised uncertainties about the Indian economy, reports suggesting the impact of El Niño on monsoon have raised fresh concerns that a poor monsoon will result in a low Kharif harvest, drive food inflation, hit rural demand and derail the growth momentum of the country.
Weather forecasters fear India may see one of its driest monsoons in years in 2026. Skymet has predicted rainfall at 94% of the long-term average, while the India Meteorological Department (IMD) expects it to be 92% of the 50-year average due to the El Niño effect.
“The West Asia conflict and the consequent spike in crude prices have triggered uncertainty about India’s growth and inflation in FY27. To add to these concerns, there are now concerns arising on the El Niño front and its impact on the monsoon. If all these misfortunes come together, the impact on Indian macros will be big. Our macro construct continues to be strong, but will become vulnerable,” said VK Vijayakumar, chief investment strategist at Geojit Investments.
Crude oil prices have declined below the $100 mark. However, it still traded near the $95 per barrel on Wednesday. For a country like India, which imports about 85-90% of its oil requirements through imports, elevated crude oil prices can shoot up inflation and distort fiscal targets.
The US-Iran conflict has driven energy prices higher due to supply disruptions. Experts highlight that the ongoing development is not just a price shock but also a supply-side stress, which can spill over into industrial and service activities in LPG-linked sectors such as hospitality and small services.
“This could weigh on consumption sentiment and marginally delay a cyclical recovery. Still, buffers such as forex reserves, diversified energy sourcing, and policy intervention limit tail risks,” Namrata Mittal, CFA, Chief Economist at SBI Funds Management, noted.
Mittal said while India’s medium-term growth drivers remain intact due to domestic demand, public and private capex, and formalisation trends, El Niño adds uncertainty to food inflation, particularly in the second half of FY27, even though the outcomes are not binary.
“Even with weather volatility, policy buffers, procurement, and subsidies reduce the probability of a severe output shock. The greater consequence is likely higher food inflation, not a collapse in agricultural production,” said Mittal.
Mittal believes fuel inflation should remain contained due to absorption by OMCs and fiscal tools, but food and selected services inflation could push headline CPI closer to the upper end of the tolerance band (5–6%) at times.
“This constrains aggressive easing but does not force a sharp tightening cycle- implying a growth slowdown, not a growth shock,” said Mittal.
What should investors do?
At the current juncture, experts recommend focusing on long-term triggers rather than short-term movements and looking for market-specific opportunities.
“There are good companies available at current levels, and this phase can be used to gradually add quality names. From a sector perspective, investors can consider FMCG and other defensive companies, as they tend to remain relatively stable during uncertain times,” said Arpit Jain, Joint MD, Arihant Capital Markets.
“The defence sector is likely to remain in the limelight given the current global environment, and this could present opportunities for investors from a medium- to long-term perspective,” Jain added.
Sidharth Sogani Jain, the founder and CEO of Blue Aster Capital and CREBACO Global, recommends putting 50-60% in debt, as debt, irrespective of the situation, generates a yield.
“Make sure that the debt is liquid enough so that if a rebalancing situation arises, you should be able to do that quickly,” he said.
Apart from debt, Jain of Blue Aster Capital recommends putting 25 to 30% in gold and copper.
“The reason why I am choosing copper over silver is that copper is required for a very high industrial use, silver is also, but silver is very volatile. Keep at least 10-15% in Bitcoin as it is essential in this particular war situation because, as per reports, Iran is also collecting the tax for crossing the Strait of Hormuz in Bitcoin,” said Blue Aster Capital’s CEO.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
