Highlights
- Geopolitical tensions drag indices, but recovery hopes remain
- Earnings growth seen resilient despite oil, macro risks
- Valuations correct, improving risk-reward across market segments
Nifty Outlook: Indian equities have taken a hit amid escalating Iran-Israel/US tensions, with the Nifty-50, Midcap and Smallcap indices falling up to 11% since the conflict began. However, a report by Kotak Institutional Equities suggests that easing geopolitical risks and stabilising oil supplies could support earnings growth, even as it cautions that uncertainty around the conflict and macro factors like monsoon risks may continue to keep investors on edge.
Nifty Outlook 2027Nifty-50, Nifty Midcap 100 and Nifty Smallcap 100 Index have fallen 11%, 10% and 8.2%, respectively, since the start of the middle east conflict.
“We expect net profits of Nifty-50 Index to grow 17% in FY2027E and 15% in FY2028E. Downside risks to earnings exist though,” Kotak Institutional Equities said.
Nifty-50 Index is trading at 18.3X FY2027E ‘EPS’ and 15.8X FY2028E ‘EPS’.
Better odds for punters (and investors)
(1) an end to the ongoing Iran-Israel/US war and
(2) normalisation of crude oil and gas supplies over the next few months, thereby limiting the damage to the Indian economy and market earnings. However, “we would caution that things could still be derailed by further escalation in the ongoing conflict.”
Nobody can call the end of the war, except for the POTUS
The 2-3 weeks’ timeline for the end to the ongoing Iran-Israel/US war, as set by the US President, raises hopes for the end of the war, despite several conflicting and mixed messages over the past 1-2 weeks.
The timeline would suggest either;
(1) the achievement of the strategic objectives of the US with respect to the degradation of the military and nuclear infrastructure of Iran or
(2) assessment of the US’s position and prospects in the ongoing conflict and/or the negative economic and political fallout of a possible ‘endless’ war.
Higher odds of our base case scenario playing out
The statements of the POTUS have improved the odds of our base case scenario of;
(1) the conflict continuing for a few weeks
(2) elevated tensions for the next few months
(3) reopening of the Strait of Hormuz over the next few weeks and
(4) no long-lasting damage to oil & gas infrastructure in the Middle East.
“Our base case scenario entails elevated oil prices for the next few weeks and a decline in oil prices after ‘normalization’ in supplies from the Middle East to a ‘high’ plateau.”
No major damage to earnings in the case of a short war, more if it drags on
The brokerage sees limited earnings downgrades for FY2027E and FY2028E if;
(1) the Iran-Israel/US war ends within the next 2-3 weeks and
(2) oil & gas supply conditions improve over the next few months.
“We note that the government has largely isolated Indian consumers and companies from the negative impact of higher retail oil prices for now. We would worry more about;
(1) weaker-than normal monsoons due to potential El Nino conditions and
(2) fertilizer shortages, which could result in a subpar summer crop.
India has a reasonable food-grain buffer.
Nobody can call the bottom of the market. Period!
The negative news cycle of the past few weeks with respect to the war and consequent supply disruptions appears to have hypnotised market participants into extrapolating the current negative environment in perpetuity or for a long time, based on the sharp fall in stock prices across caps, sectors and stocks since the start of the war.
It noted that the reward-risk balance has improved across more parts of the market, given the correction in valuations of the market and in many sectors and stocks.
(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.)
