New Delhi: Escalating conflict in the Middle East could only cause minimal rupee depreciation and disruption in growth while defence stocks and precious metals could rally, a report said on Thursday. 

Reserve Bank of India intervention expected to cap rupee depreciation

The report from asset management firm Shriram Wealth said a 10 per cent rise from RBI's baseline assumption of crude oil price could lift inflation by 30 bps but weaken the rupee and growth minimally.

The same could cut growth by 15 bps, while a 5 per cent rupee depreciation could raise inflation by 35 bps but add 25 bps to GDP growth, it added.

The firm forecasted that depreciation in INR is likely to be capped on account of RBI FX intervention.

“Additionally, reversal of ongoing tensions should help the local currency stabilize. Based on these assumptions, we noted limited upside risks of oil prices to domestic inflation and growth outlook,” the report said.

The RBI’s baseline assumption for crude oil in H2FY26 was $70 per barrel with INR at 88 per dollar, and the Indian crude basket has averaged $65 and spot INR at 89.5 in the second half of FY26, the report said. 

India’s overall macros such as forex reserves exceeding $700 billion, manageable trade & current account deficits, low inflation & interest rates, contained fiscal deficit are in a fairly strong position providing resilience to the broader economy, the report noted.

Sectors reliant on crude inputs such as chemicals, paints, pharma, airlines, tyres and OMCs may face margin pressure, while companies with meaningful Middle East exposure could see operational and earnings risks.

“The defence sector is likely to benefit from improving sentiment amid rising global defence spending. Any further escalation in conflict is likely to support gold and silver prices in the short term, which would be positive for gold and silver ETF investments,” it said.

Nearly 9 million Indians reside in the Middle East, contributing 38 per cent of remittances, and the region accounts for 15 per cent of India’s exports and 21 per cent of imports.

(IANS)