Firms Face Uncertainty in Providing FY27 Earnings Guidance, According to LIC MF's Dikshit Mittal

Economic Uncertainty Lingers Amid Ongoing Conflict

The ongoing conflict in West Asia has cast a shadow of uncertainty over the global economy, making it challenging for corporate managements to provide earnings guidance with confidence. Dikshit Mittal, Senior Fund Manager - Equity at LIC Mutual Fund, emphasized that greater clarity on the extent of disruption and the time required for normalization across inventories, supply chains, and demand conditions can emerge only once the situation stabilizes.

According to Mittal, it may be necessary to wait at least another quarter for meaningful visibility, assuming conditions begin to normalize in a timely manner. Meanwhile, the authorities are expected to continue taking proactive steps to support growth, while remaining mindful of fiscal prudence and government finances.

The geopolitical environment remains highly volatile, making it difficult to draw firm conclusions at this stage. The Strait of Hormuz, which facilitates nearly 20 percent of global oil supply, is a critical chokepoint that could disrupt transit and keep oil prices elevated for a prolonged period. In response to such disruptions, several countries may seek to strengthen their strategic petroleum reserves, potentially creating incremental demand for oil and providing near-term support to prices.

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Oil prices are exhibiting heightened volatility, reacting sharply to daily news flows. While forecasting commodity prices remains inherently challenging, even a swift reopening of the Strait would not immediately normalize conditions. Physical damage to energy infrastructure and the time required for supply chain restoration could keep oil prices elevated for an extended period.

Market valuations have moderated to levels below their long-term averages, providing a degree of comfort. However, the ongoing energy crisis is likely to have some impact on earnings forecasts, although the magnitude of this impact is difficult to quantify at this stage. Prior to the Middle East conflict, consensus expectations for the Nifty 50 were centered around mid-teen earnings growth for FY27. A prolonged conflict could pose downside risks to these estimates.

The RBI has projected FY27 GDP growth at 6.9%. However, this outlook carries downside risks should the West Asia conflict remain unresolved, as prolonged tensions could disrupt supply chains and adversely impact capital flows.

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Given the ongoing uncertainty, it may be necessary to wait at least another quarter for meaningful visibility on FY27 earnings growth forecasts. The IT sector is currently facing challenges arising from AI-led productivity gains, which could disrupt certain elements of existing revenue models. However, Indian IT companies are well-positioned in this context, supported by deep industry-wide sales coverage, decades-long client relationships, and strong ecosystem partnerships.

The government and regulators have already implemented several meaningful measures to support economic growth, including rationalization of direct and indirect tax rates, reduction in the cost of capital, liquidity infusion, and cuts in fuel excise duties. Going forward, we expect the authorities to continue taking proactive steps to support growth, while remaining mindful of fiscal prudence and government finances.