The surge in crude oil prices due to the prolonged US-Iran war has stoked fears of high inflation and rattled global financial markets. The Indian stock market is also reeling under heavy selling pressure and sustained outflow of foreign funds as the risk-appetite remains weak.
Economists estimate that every $10 per barrel increase in crude oil prices widens India’s current account deficit (CAD) by 35–50 basis points (bps) of GDP, raises headline CPI inflation by 20–25 bps through higher fuel and transportation costs, dents GDP growth by 15–20 bps, and exerts depreciation pressure on the rupee.
Against this backdrop, the crude oil price shock is expected to prompt policy responses from the government aimed at strengthening India’s energy security.
Market strategists at Emkay Global Financial Services believe that accelerating Electric Vehicle (EV) adoption could be one of the most impactful measures, potentially supported by the reintroduction of the demand-side subsidies.
They note that EV adoption should be complemented by a continued push towards renewable energy, along with focus to address execution bottlenecks such as transmission capacity and evacuation infrastructure. Additionally, sustained investments in expanding India’s strategic petroleum reserves (SPR) could further enhance energy resilience.
EV Adoption Push
EV adoption could play a pivotal role in reducing dependence on fossil fuels and improving energy security. With demand subsidies for EVs gradually being phased out and currently expected to expire between FY27 and FY29, Emkay sees a strong case for their reintroduction.
According to the brokerage, a 10% subsidy on EVs could significantly enhance the three-year total cost of ownership (TCO) advantage for two-wheelers—from 1% to 10% (and from 4% to 13% over five years). This could translate into an approximately 11 percentage point increase in EV adoption by FY35, raising penetration from 23% to 34% of the vehicle population.
Under such a scenario, savings on fuel imports could potentially double, leading to an estimated ~12 percentage point improvement in the CAD. The current geopolitical situation may, therefore, prompt the government to reconsider extending demand subsidies, given the substantial positive externalities.
Importantly, the associated fiscal cost is estimated to be manageable at around 5 bps of GDP by FY35.
India’s oil import requirement is projected at approximately 3.54 billion barrels in FY35. Under the base case assumption of 23% Electric Vehicle penetration, this could result in around 4.5% savings in the oil import bill, translating into a meaningful ~12% reduction in the CAD.
EV Stocks to Buy
Any favourable policy developments are likely to benefit EV-focused companies. Emkay’s top picks in this space include Ather Energy and TVS Motor Company.
The brokerage has assigned a ‘Buy’ rating on Ather Energy with a target price of ₹1,000 per share, and a ‘Buy’ rating on TVS Motor Company shares with a target price of ₹4,500 per share.
However, Emkay clarified that these projections are based on its internal analysis, and there are currently no publicly disclosed plans to extend EV subsidies.
Renewable Energy: Focus on Execution
India is targeting an approximately 18% compound annual growth rate (CAGR) in renewable energy capacity through FY30, with the share of renewable power generation expected to rise to 50% of total generation.
However, execution challenges — particularly around transmission infrastructure, evacuation constraints, and land acquisition — remain key bottlenecks.
Emkay highlighted that these are largely operational issues requiring targeted, ground-level interventions rather than broad policy changes. Battery Energy Storage System (BESS) integration is another critical component, although technological maturity remains a constraint.
That said, the government may provide additional impetus to the sector through fiscal incentives aimed at strengthening the broader ecosystem.
Renewable Energy Stocks to Buy
The brokerage prefers companies with strong positioning in the renewable value chain, including Waaree Energies, GE Vernova T&D India, and Voltamp Transformers.
Waaree Energies: Buy | Target Price: ₹4,260
Adani Green Energy: Buy | Target Price: ₹1,350
Voltamp Transformers: Buy | Target Price: ₹10,000
Strategic Petroleum Reserves and LPG Concerns
India’s operational strategic petroleum reserves currently cover approximately 5–6 days of consumption. However, oil public sector undertakings (PSUs) maintain an additional ~50 days of commercial inventory, which can be accessed in case of emergencies.
The government is in the process of expanding SPR capacity, with plans to increase coverage to 22 days post Phase 2 implementation by FY32, and further to 30 days by 2040.
While these buffers provide some resilience, further strengthening of SPR infrastructure remains essential. So far, the US-Iran war in the Middle East crisis has not significantly disrupted the availability of petroleum products, barring liquefied petroleum gas (LPG).
The LPG situation is relatively more vulnerable. India imports nearly 55% of its LPG requirements from the Gulf and typically maintains reserves for 20–25 days. The current crisis has led to aggressive demand management measures, including up to 80% supply cuts for commercial users.
According to Emkay, the government has limited options in this segment. Diversifying LPG imports away from the Gulf is challenging due to cost considerations. Expanding LPG storage capacity is necessary but logistically complex, potentially requiring up to five years to add an additional 20–25 days of reserves.
In the longer term, demand-side measures could provide relief. For instance, doubling the share of piped natural gas (PNG) from 5% to 10% could reduce LPG imports by approximately 10%.
Disclaimer: 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.
