India Inc's Earnings Hit by War-Related Uncertainty

India's Economy and Companies Face Challenges Amid Ongoing Iran War

February Merchandise Exports Decline Marginally

The ongoing Iran war is having a significant impact on India's economy and companies operating in the country. With the conflict entering its third week, India's merchandise exports declined marginally in February. The war has led to outbound travel and shipment disruptions, resulting in curtailed supplies of natural gas and LPG. This has caused temporary losses in production and income for several industries and small businesses.

Impact on Corporate Earnings

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Analysts at Nomura warn that a prolonged period of high energy prices can adversely impact FY27 earnings. A 10-15% revision in aggregate corporate earnings is possible if oil prices sustain at $100/barrel. Companies outside the large cap indices, including mid and small caps, face a bigger risk to their earnings due to their sensitivity to input cost changes, currency depreciation, interest rate changes, and external economic environment.

Mid and Small Cap Indices at Risk

Current profit growth expectations of mid cap and small cap indices are notably higher than the Nifty 50. However, these indices are also trading at higher valuations or at par to large cap stocks. Analysts at ICICI Securities warn that superior growth expectations from SMIDs (small cap and mid cap companies) are clearly at risk if the Gulf conflict sustains for a longer period of time.

Relatively Protected Sectors

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Analysts at Emkay identify Technology, Pharma, Metals, and Power as relatively protected sectors. On the other hand, OMCs (oil marketing companies), Utilities, Airlines, and Autos are more exposed to the ongoing conflict.

Investment Opportunities

The ongoing correction in stock markets can provide investors with an opportunity to restructure their portfolios and add quality companies. However, the key question is whether Indian markets have corrected enough for investors to go bargain hunting.

Timeline

• Normalcy is expected to return after the conflict in 30-40 days.
• The conflict began on February 28, resulting in a significant amount of time lost for businesses and the global economy in 2026.