The oil price spike, petrol and diesel hike and the recent WPI print have brought the spotlight back on inflation. And when inflation rises, it not only erodes the purchasing power of households but also threatens the margins for India Inc.
At the end of the December quarter, analysts had warned that the easy phase of margin-led profit growth might be over, with the post-COVID benefits of lower input costs and pricing power now receding. Given the latest developments in West Asia and its subsequent impact on oil prices, a major input cost for many industries, the impact on margins is likely to be steeper.
Since the onset of the Middle East war between the US and Iran, oil prices have spiked by almost 55%. Currently, the prices have cooled off to below $100 per barrel as traders eye the scope of fresh peace talks between the two nations. Although the ceasefire continues to hang by a thread amid skirmishes near the Strait of Hormuz.
Inflation in focus
Add to the oil price spike, the ₹7 by the government”>fuel hikes of over ₹7 by the government. According to brokerage JM Financial Services, the second-order effects will be pronounced if the incremental fuel price hikes are not spread out, which would eventually unanchor inflation expectations.
“In fact, the latest manufacturing PMI survey (Apr’26) already shows inflationary pressures across energy, food, fuel, gas, iron, leather, oil, plastics, rubber, steel and transportation. The RBI expects inflation to average 4.6% in FY27, but may have to edge it up at the upcoming MPC meeting in Jun’26,” it noted.
A PTI report, dated 26 May, quoting several economists, warned that retail inflation could rise to 5% by June, but the RBI will wait and watch till the impact of the fuel price hike settles in before tightening interest rates in the second half of the fiscal year.
Since the last MPC policy announcement on April 8, WPI inflation has flared up to a 42-month high of 8.3% in April, reflecting the global commodity price pressures. With inadequate passthrough, retail or consumer price index (CPI) based inflation rose modestly to 3.48% in April.
The CPI inflation data for May is scheduled to be released on June 12.
Margin pressure on cards, downgrades unlikely
The impact of rising inflation on earnings is fairly straightforward. Higher input costs can put pressure on margins, which may affect profitability. However, inflation also tends to push up revenues because companies often pass on higher costs through price hikes.
While margins may come under pressure, topline growth can remain strong, said Nikhil Gangil, founder and CIO at Intrinsic Value.
Siddhartha Khemka – Head of Research, Wealth Management, Motilal Oswal Financial Services, said that the current FY27 Nifty EPS growth expectations of ~18% were built on materially lower crude assumptions. With Brent sustaining around USD107–111/bbl, those estimates appear vulnerable to downward revisions, he added.
Historically, every sustained USD10/bbl increase in crude has translated into a 40–60bp drag on aggregate Nifty margins. “While Q4FY26 earnings have broadly held up so far, the more meaningful test will likely emerge in Q1FY27 results.”
However, the impact may not be the same across all sectors. “Industries such as paints, chemicals, aviation, cement and consumer goods could feel the heat more because of their heavy dependence on raw materials and energy costs,” said Dr Ravi Singh, Chief Research Officer (Research) at Master Capital Services Limited.
He added that the bigger challenge is that higher crude prices eventually filter through the entire economy, as rising oil prices not only increase fuel expenses but also affect transportation, logistics and overall operating costs. However, Singh said that businesses with strong brands and better pricing power can still pass a part of the cost burden to customers, thereby protecting their bottomline.
“So while margin pressure is becoming a concern, expecting a broad-based slowdown across India Inc may still be premature. The impact is likely to remain more selective and sector-driven,” Dr Singh noted.
Since markets are a slave to earnings, any slowdown can be an added worry for the Indian stock market, already reeling from intense selling pressure. Oil price spike, rupee weakness and FII selling remain key headwinds for the market.
However, Gangil believes that the market has recently formed what appears to be a long-term bottom after nearly 18–20 months of correction. “Given that backdrop, I don’t see a strong reason for the market to undergo another major correction. It may consolidate for some time, but that’s different from a significant decline. Historically, periods of inflation have often coincided with higher nominal revenues for companies,” he said.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
