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Nifty 50 Holds Firm: Indian equity markets may have already absorbed the worst impact of the recent geopolitical turmoil in West Asia, with benchmark indices showing signs of resilience despite heightened uncertainty, according to Vinod Karki, Head of Strategy at ICICI Securities. Karki said the sharp sell‑off witnessed earlier was the market’s way of discounting a short‑term disruption rather than a structural economic shock.
“From the day the conflict started to the end of March, where we saw the bottom of the market, the market‑cap erosion was close to Rs 51 trillion, which was roughly 15 per cent of GDP,” Karki said. “From that perspective, the market has already discounted the maximum short‑term impact to a large extent.”
He added that equity markets have since recovered from those lows, suggesting that investors are now working with a base‑case scenario rather than a prolonged crisis. “This appears to be a base‑case issue which will last maybe a quarter or so, three to four months. We have already passed about a month into that environment,” he noted.
Nifty Better Positioned Amid Energy Shock
Karki believes the Nifty 50 is better insulated from the current energy‑driven shock compared with the broader market. “If you look at this crisis, it is essentially an energy crisis,” he said. “There are suppliers of energy and there are consumers of energy.”
Explaining the sectoral dynamics within the economy, Karki pointed out that, “About 55 per cent of energy supplied to end consumers comes from coal and electricity, while around 45 per cent comes from oil and gas. Industry is a far larger consumer of coal and electricity than oil,” he said.
Inflation Kicker Could Lift Nominal Growth
While rising oil prices have rekindled inflation concerns, Karki argued that a moderate inflation uptick may actually aid nominal growth. “Before this crisis, inflation was abnormally low,” he said. “If this turns out to be a temporary issue, it gives an inflation kicker to the system.”
“So far, what we are seeing is a supply shock, not a collapse in demand,” he explained. “Prices are going up, companies are either passing it on or absorbing some of it, and if demand remains stable, nominal numbers will look better.”
He cautioned, however, that the tipping point would be if inflation begins to destroy demand. “We haven’t seen that stage yet,” he said.
Earnings Outlook: Volumes Offer Comfort
On earnings, Karki pointed to encouraging signs from recent business updates. “Q4 updates so far show healthy volume growth, credit growth is running at around 14 per cent, and auto companies have reported strong double‑digit volume growth,” he said.
“Wherever companies have given volume guidance, the trends look positive,” Karki said, adding that the return of inflation could lift nominal earnings. He cited the RBI’s latest policy guidance, noting that inflation forecasts have been nudged higher to around 4.5–5 per cent next year. “That means nominal growth should look better going forward.”
Oil Shock Likely Temporary
On crude oil and the potential fallout from supply disruptions, Karki said markets are already looking beyond the immediate conflict. “We’ve seen about a month of this crisis, and it appears that much of the escalation may be behind us. Negotiations are now on the table,” he said.
Even if energy prices remain elevated, Karki believes they may not derail growth. “Markets look six to twelve months ahead. If they see the crisis getting resolved over that period, they move on,” he explained.
“There has been damage to energy infrastructure in the Middle East, so prices won’t fall immediately, but that doesn’t mean demand gets killed,” he added.
Where He Sees Opportunity
Karki said macro‑driven corrections often create mispriced opportunities. “In macro events, you should look at what has fallen the most,” he said. “PSU banks, financials, autos and some industrials have corrected largely due to correlation, not fundamentals.”
“If this is a three‑month affair, we won’t see major pressure on asset quality,” he said. “Credit growth could actually improve, working capital requirements will rise, and nominal growth will be stronger.”
“The stocks that didn’t fall at all offer little opportunity,” Karki summed up. “The opportunity lies where prices have corrected without a corresponding hit to fundamentals.”
(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.)
