Minimal Rupee Risk Amid Rising Middle East Tensions: Report
Synopsis
As tensions escalate in the Middle East, a recent report reveals that the rupee is likely to face only slight depreciation, while growth remains minimally affected. Discover how sectors like defense and precious metals may thrive amidst these challenges.
Key Takeaways
Minimal impact on rupee despite rising tensions Defense stocks likely to benefit from increased global spending Precious metals may see price increases RBI interventions expected to stabilize the rupee Overall economic indicators remain strong
New Delhi, March 5 (NationPress) The intensifying conflict in the Middle East is projected to induce only a slight depreciation of the rupee and minimal disruption to economic growth, while sectors like defense stocks and precious metals may experience a surge, according to a report released on Thursday.
The analysis from asset management firm Shriram Wealth indicates that a 10% increase from the RBI's baseline crude oil price assumption could lead to a 30 basis points rise in inflation, but would only cause a marginal impact on the rupee and growth.
Additionally, such a situation could reduce growth by 15 basis points, while a 5% drop in the rupee's value could push inflation up by 35 basis points but simultaneously enhance GDP growth by 25 basis points, the report elaborated.
The firm anticipates that the rupee's depreciation will be limited due to the RBI's foreign exchange interventions.
“Furthermore, a de-escalation of ongoing tensions is expected to aid in stabilizing the local currency. Based on these projections, we observe limited upward risks from oil prices impacting domestic inflation and growth forecasts,” the report stated.
According to the RBI, the baseline crude oil price assumption for the second half of FY26 stands at $70 per barrel, with the INR at 88 per dollar. The actual Indian crude basket has averaged $65, with spot INR at 89.5 during this period.
India's macroeconomic indicators, including forex reserves exceeding $700 billion, manageable trade and current account deficits, low inflation and interest rates, and a contained fiscal deficit, position the economy quite robustly, the report highlighted.
Sectors that are dependent on crude inputs—like chemicals, paints, pharmaceuticals, airlines, tyres, and oil marketing companies—might experience margin pressures, while companies with significant exposure to the Middle East could face operational and earnings challenges.
“The defense sector is expected to gain from an upswing in sentiment with increasing global defense expenditures. Any further conflict escalation is likely to elevate gold and silver prices in the short term, benefiting investments in gold and silver ETFs,” it added.
Approximately 9 million Indians live in the Middle East, contributing 38% of remittances, with the region accounting for 15% of India’s exports and 21% of imports.
aar/pk
Point of View
The report underscores the resilience of India's economy amidst geopolitical tensions. While challenges exist, the overall macroeconomic stability and RBI interventions provide a buffer, indicating that the rupee's depreciation will be manageable and that growth disruptions will be limited.
NationPress
8 May 2026
Frequently Asked Questions
How will Middle East tensions affect the Indian rupee?
The report suggests that the rupee will experience only minimal depreciation due to geopolitical tensions in the Middle East.
What impact could rising oil prices have on inflation?
A 10% rise in oil prices could increase inflation by 30 basis points, but the overall effect on the rupee and growth is expected to be limited.
Which sectors are likely to benefit from these tensions?
The defense sector and precious metals, such as gold and silver, are expected to see positive sentiment and potential gains amidst rising global defense spending.
What is the RBI's baseline assumption for crude oil prices?
The RBI's baseline assumption for crude oil in the second half of FY26 is $70 per barrel.
How many Indians live in the Middle East?
Approximately 9 million Indians reside in the Middle East, contributing significantly to remittances and trade.
