Oil prices are just the beginning—two other critical factors will impact the stock market.

Qingming Festival is over, and markets reopen today. Over the weekend, news headlines were bustling—rumors even circulated that Trump had died. Ha ha—truly unbelievable. Right now, a mix of genuine and false, real and fabricated information is fueling intense market博弈 (strategic maneuvering), causing significant volatility in the stock market. This volatility isn’t just hurting retail investors—it’s also inflicting severe stress on institutional players, triggering repeated margin calls and forced liquidations. We’ll address the news-driven developments later. First, let’s discuss some key data releases coming soon. I. China’s PPI “Blood-Draining” Effect Earlier, we explained why rising oil prices trigger declines in capital markets. The main reason is that oil is a necessity: when its price rises, it inevitably absorbs more capital, tightening liquidity. Moreover, persistently high oil prices dampen economic activity and suppress demand—leading to a simultaneous slowdown and inflation. Stock price = PE × EPS Thus, sustained high oil prices exert downward pressure on both PE and EPS—especially for highly valued sectors, which warrant particular caution. Don’t assume telling a compelling story alone can bolster bearish sentiment. During periods of abundant liquidity, even absurd narratives find believers; but when liquidity dries up, no one listens to stories anymore. In fact, sharp price hikes in *any* essential commodity produce similar effects. For instance, imagine grain prices surging tenfold—would anyone still have the appetite to trade stocks? Recently, Indian equities have plunged sharply. There, even fertilizer is in short supply—precisely during the sowing season. And with current shortages of petroleum and natural gas, many Indians cannot cook at home, and roughly 30% of restaurants have shut down. A growing number are returning to rural areas, where at least firewood remains available for cooking. So—is it any wonder the Indian stock market is collapsing? Rising oil prices will inevitably push up China’s PPI. Remember: Chinese industrial goods are themselves necessities—and even enjoy certain monopolistic advantages. As China’s PPI climbs, it will further drain global market liquidity. For weaker economies, this adds insult to injury. Yet for “Dongda” (a colloquial term for China), it’s actually beneficial. When global prices rise across the board, China’s cost advantage becomes even more pronounced—perfect for seizing market share from others. Countries like India—where numerous factories are cutting output or halting production—will grow even more reliant on imports. For A-shares, rising PPI mainly drives a shift in market style. Future divergence will remain extreme! Reckless speculation carries serious risks! II. The Fed’s Balance Sheet Contraction (“Quantitative Tightening”) as a “Blood-Draining” Force Don’t fixate solely on developments in the Middle East. Next month, Waller takes the helm. He advocates both rate cuts *and* balance sheet contraction. Whether he cuts rates remains uncertain—but balance sheet contraction appears highly likely. Had there been no Middle East war, the Fed could have better controlled the pace of its operations. But amid today’s global chaos, any additional Fed intervention could unleash unpredictable turbulence. Both the economy and financial markets are complex systems: even minor changes can trigger butterfly effects—let alone shifts in Fed monetary policy. That said, balance sheet contraction comes in varying degrees: mild, moderate, or aggressive. How Waller chooses to proceed remains to be seen. For most central banks worldwide, the path ahead looks extremely difficult. On one hand, inflation is rising; on the other, economic recession looms. Raising rates fails to curb inflation—and instead worsens recession. Cutting rates fuels inflation but eases recessionary pressures, merely postponing the problem. Meanwhile, national governments—keen to secure votes—will likely pursue expansionary fiscal policies.

India Monthly Review (Aug. 15–Oct. 15): Electoral pressure compounded by dual external shocks—performative governance has reached a tipping point.

Three-tiered chain reaction: 1. Autumn harvest crops under pressure: Rice, sugarcane, and pulses face yield-reduction risks. Food accounts for the largest weight in India’s CPI basket; any production shortfall would directly ignite food inflation, severely impacting living standards for low-income groups—and thereby undermining the electoral base. 2. Policy dilemma: Should crop yields decline, India may reinstate grain export bans. Its August decision to resume wheat exports could thus be reversed; reimposing export restrictions would further erode international confidence in India’s grain policy. 3. Secondary impacts: Drought intensifies groundwater depletion; heatwaves increase labor-force attrition; and rural livelihood pressures mount. Crucially, El Niño’s full impact lags—its true strain will unfold gradually over the next 3–6 months. We’re still in the risk-accumulation phase. II. Persistently high oil prices continue depleting India’s buffers. India relies on imports for nearly 90% of its crude oil—making it the world’s third-largest oil importer. With Brent crude holding steadily above USD 100 per barrel, India faces continuous imported inflationary pressure. Real-world constraints: 1. To safeguard electoral prospects, the government dares not raise domestic retail fuel prices—fearing public backlash. Instead, state-owned oil companies absorb mounting cost pressures, widening their losses. If the government steps in with subsidies, fiscal burdens escalate further. 2. Higher oil prices directly inflate transport, fertilizer, and manufacturing costs—indirectly pushing up overall inflation. 3. Crude imports require massive dollar outflows, steadily depleting foreign exchange reserves. The rupee remains under persistent pressure, forcing the Reserve Bank of India to continuously intervene using FX reserves—steadily shrinking its foreign-exchange buffer. 4. High oil prices also trigger episodic foreign capital outflows, pressuring equity and bond markets and undermining investor confidence. In brief: El Niño undermines domestic agriculture; high oil prices strain external accounts. With these two external shocks striking simultaneously, India’s policy maneuvering room has been significantly narrowed. IV. Economic & Industrial Landscape: Strong headline GDP figures mask enduring structural weaknesses. 1. GDP growth remains robust on paper—but structural imbalances persist: Government infrastructure investment drives growth, while private capital expenditure remains sluggish; consumption is polarized—luxury spending thrives, yet mass-market consumption stays weak. 2. “Make in India” continues announcing memoranda of understanding (MOUs) and investment intentions—Japanese firms and select multinationals keep unveiling new projects. Yet foundational institutional bottlenecks—land acquisition, labor regulations, tax administration, and infrastructure—remain unaddressed. Most projects stall on paper; actual commissioning and operationalization rates remain low. 3. A telling case: Japanese retail giant 7-Eleven’s complete withdrawal from India has become a symbolic event signaling fading foreign investor confidence. On October 6, 7&I Holdings announced that its Indian franchisee, Reliance Retail, had shuttered all 31 7-Eleven stores in Mumbai and Pune by September 30—marking the brand’s full exit from India after a five-year localization attempt. Launched in India in 2021, 7-Eleven peaked at around 60 outlets. Yet operations incurred sustained heavy losses: FY2026 (ending March) revenue totaled just ₹920 million, with net losses nearing ₹900 million—almost equaling annual revenue.

Indian Shares Seen Opening Lower as High Oil Prices Fuel Inflation Worries

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Indian shares are expected to open lower as Brent crude stays above $110 per barrel amid Middle East tensions, stoking inflation fears for the energy-importing nation. Investors weigh potential rate hikes against economic growth risks.

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Indian Shares Seen Opening Lower as High Oil Prices Fuel Inflation Worries

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