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New Delhi.New Delhi: Escalating fighting in the Middle East could lead to a slight decline in the rupee and hamper growth, while boosting defense stocks and precious metals, a report said on Thursday.

A report by asset management firm Shriram Wealth said that a 10 per cent increase in crude oil prices from the RBI’s baseline estimate could increase inflation by 30 bps, but the rupee and growth would be marginally lower.

This could reduce growth by 15 bps, while a 5 per cent fall in rupee could increase inflation by 35 bps, but increase GDP growth by 25 bps, it said.

The firm estimated that the decline in INR is likely to be capped due to FX intervention by RBI.

“Additionally, an easing of ongoing tensions will help stabilize the local currency. Based on these assumptions, we see limited upside risks to oil prices on domestic inflation and growth outlook,” the report said. The report said the RBI’s baseline estimate for crude oil in H2FY26 was $70 per barrel with spot INR 88 per dollar, and the Indian crude basket average in H2FY26 has been $65 and spot INR 89.5.

The report said India’s overall macros such as forex reserves of over $700 billion, manageable trade and current account deficits, low inflation and interest rates, controlled fiscal deficit are in a very strong position, which are underpinning the macro economy.

Sectors dependent on crude oil inputs such as chemicals, paints, pharma, airlines, tires and OMCs may face pressure on margins, while companies with significant exposure to the Middle East may face operational and earnings risks.

“The defense sector is likely to benefit from improved sentiment amid rising global defense spending. Further increase in hostilities is likely to support gold and silver prices in the short term, which will be positive for gold and silver ETF investments,” it said. The Middle East is home to about 9 million Indians, contributes 38 percent of remittances, and the region accounts for 15 percent of India’s exports and 21 percent of its imports.