While the Indian economy can manage oil prices up to $90–95 per barrel due to improved infrastructure, he says investor flows may remain weak if prices stay above $80 per barrel.
However, he said, “If the oil price does come down… markets that have performed the worst since this war started would recover the most, and India is right at the top of that list.”
Midcaps are already showing resilience and could lead a broader market recovery.
For the full interview, watch the accompanying video
On the broader outlook, Matthews said oil spikes linked to geopolitical tensions have historically been short-lived, with prices typically rising sharply for a brief period before correcting. He added that higher prices incentivise additional supply from global producers, which helps stabilise markets over time.
These are edited excerpts from the interview.Q: Crude prices on the boil now, $106 per barrel, and it’s hurting India, and brokerages are quickly downgrading India. It’s not just JPMorgan. Yesterday, we spoke about HSBC; before that, it was Nomura, it was Goldman Sachs, it was UBS, all sounding a bit cautious in saying the opportunities are better elsewhere in emerging markets (EMs). You have been a bull on India? Is that thesis changing?A: I see the points that they’re making, and they’re valid, but you can come back with counterarguments. One very simple one is that the oil price will not stay at this high level if the Iranians and the Americans come to some agreement, and that is our base case. They’re playing chicken with each other.
Both can play a waiting game, but Iran is the more vulnerable one, because their budget is $56 billion a year. The American budget is $6 trillion a year, and Iran is losing about $400 million a day because of the blockade. So, as much as Trump has the midterms to worry about and the high gasoline prices in the United States, the Iranians have reason to come to the table too.
The major point of contention, of course, is nuclear power, and it’s so deeply embedded in the Iranian psyche now that I don’t know how they can get around that, but where there’s a will, there’s a way.
So, if the oil price does come down, and we do expect it to be back in the 60s by the end of this year, I would think intuitively that the markets that have performed the worst since this war started would recover the most, and India is right at the top of that list.
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The other thing I would point out, just a technical thing, is the very strong rebound in the midcaps. The Nifty Midcap index is just about 2% below where it was before this war started. And it is acting as a lead indicator for the Nifty itself. And so, I believe that the midcaps will make a new high, and then the Nifty will follow suit.
Q: You would be an outlier in expecting crude prices to go back to where they were before the war started, back to levels of $60 per barrel by the end of the year. But markets are a game of probability. Assuming that oil prices settle higher, maybe around $80–$90-$95 per barrel, then how would India be placed?A: Just to clarify, I didn’t say $60 a barrel. I said in the 60s, to be precise, our price is $67 per barrel by the end of the year. If oil is above $80 per barrel, it is a problem for India. The economy can survive, but it’s a price at which investors would just stay away, because they would look at it as being too high. India can manage economically up to $90 per barrel, maybe even $95 per barrel, because the infrastructure has improved so much, and the machinery and equipment in the country compared to 20 years ago. But $80 a barrel would be broadly where the price point is, where people would — until we get below that — just stay clear of India.
Q: The market is optimistic by nature. Things will get resolved. How can this go on? This is illogical, because markets, collective wisdom is based on logic and the greater good and good stuff happening. But just look at the last 12 hours or so. Do you believe some of these off-ramps are, in a way, fading, disappearing? All the statements, US President Donald Trump’s posts, and the press conference by Secretary of Defence Pete Hegseth and Chairman of the Joint Chiefs Gen. Dan Caine. One thing the market is not ready for is the re-escalation of actual fighting. Do you think that is a risk at all, or not?A: The oil price is partially factoring that in. As you know, Brent is well above $100 per barrel again. All I can say is that it is in the interest of both sides to defuse this confrontation, and of course, they’re both putting up a lot of bluster. It’s like when you’re buying a carpet in a carpet store. Of course, the merchant is going to start with a very high price, and you start with a very low price, and you meet somewhere in the middle.
But what I would also say is that if you look back at the history of these oil price shocks related to geopolitical conflicts, there’s been about a dozen over the last 30–40 years, and the trajectory is always the same: the oil price goes up quite steeply for about a month or two, and then it comes back down.
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That goes back to the first Gulf War in 1990. It’s always the same thing, in part because, apart from the fact that the political issue tends to get solved, also when oil is at the kind of prices it’s at today, all kinds of marginal producers are profitable, from Canada to Brazil and shale in America, and they’ll produce more.
You have to go back to the 1970s, specifically 1973 and 1979, to see oil price shocks that end up lasting for years. And I don’t think we’re looking at one of those.
Q: I wanted to ask you about Google announcing a big capex plan, an agenting platform overnight. They’re talking about $170–$180 billion. How worried are you about all these large capex announcements that have been made in the last few months and overnight as well?A: Clearly, the capex of the hyperscalers has been the reason why those shares have not outperformed over the last half year or so. Previously, the big tech stocks in America were these massive outperformers.
And I would say that the forecast for the hyperscalers in general — not Google specifically — is that their capex will peak in the second half of this year, and if that’s the case, and they start implementing AI in the workforce, unfortunately, that may come at the cost of a lot of people’s jobs.
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You might have seen the report a couple of days ago from Meta that they’re going to fire 10% of their workforce. What we will also see very soon is the direct impact of AI in these companies’ P&L statements, which will be very accretive and drive returns on investment. So, the market is already starting to see that, and it’s starting to come back to liking the technology sector again.
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