Indian stock market outlook: Elevated crude oil prices, rather than a delayed monsoon, pose the biggest risk to corporate earnings in the current financial year, according to Aman Chowhan, Senior Fund Manager at Abakkus Asset Management.
Speaking in an interview with ET Now, Chowhan said concerns around monsoon remain secondary for now, while sustained higher oil prices could significantly weigh on corporate profitability.
Oil prices in recent times surged to their highest levels since 2022, with Brent crude briefly exceeding USD 126 per barrel, driven primarily by the US-Iran war and supply disruptions in the Middle East.
“March quarter was fine because companies had inventories, finished goods or existing contracts…the June quarter is where the impact will start becoming visible,” he said.
According to Chowhan, even if geopolitical tensions ease and oil prices retreat from recent highs, markets will eventually need to adjust to a higher crude environment than previously expected.”I believe anywhere between 100 to 200 basis points of impact due to higher oil prices can be visible in the current year,” he said.
Margin risk higher than demand risk
On FY27 earnings, Chowhan said it is still too early to estimate the full impact, as companies themselves are assessing the effect of changing cost conditions. “When we speak to portfolio companies, they say it is a bit early to gauge the impact…Maybe in 15-20 days or a month, we will have a better picture,” he said.
While earnings revisions are yet to play out, Chowhan believes the primary risk lies in margins rather than revenue growth.
“Demand seems to be holding on pretty well… The risk is more on margins than on the top line,” he said, adding that the ability of companies to pass on higher costs will determine the eventual earnings impact.
Renewables, Pharma see higher allocations
To navigate the current environment, Abakkus Asset Management has increased exposure to renewable energy and pharmaceutical companies. “We have got more of renewables. Whether it is solar, wind or ethanol, government focus has to be there,” Chowhan said.
He added that pharma remains attractive because of currency benefits, resilient margins and domestic manufacturing opportunities.
According to Chowhan, renewables, pharma and domestic manufacturing have received the bulk of incremental allocations over the last two months.
IT still faces AI overhang
Despite a sharp correction in technology stocks, Chowhan said the fund house remains cautious on the sector and had largely exited IT services exposure around six months ago. “We are not in a hurry to look at IT even at these levels,” he said.
While IT firms are expected to partner with AI companies and offer new solutions to clients, Chowhan believes concerns around artificial intelligence continue to cloud the sector’s valuation outlook.
“There is no reason for somebody to pay a higher P/E for an IT company today. The re-rating story is not likely in IT, at least in the near term,” he said.
“The demand is robust. Consumer durables as well as discretionary are the two segments we would focus on,” he said. The analyst also remains positive on capital-market-linked businesses, including wealth management and broking firms, describing them as robust long-term business models.
NBFCs preferred over banks
Within financials, Chowhan prefers NBFCs and private-sector banks over public-sector lenders. “Incrementally, now we are buying only private banks. We are not adding exposure to PSU banks,” he said. Further adding that, “I believe NBFCs and private banks will be able to handle that environment in a better way.”
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money-related decisions.)
