India's Economic Resilience Could Mitigate Impact of Global Recession Triggered by Iran Conflict

Global Economy and India's Outlook

The ongoing US-Iran conflict has sparked concerns about its impact on the global economy. TCG AMC MD & CEO Shahzad Madon believes that if the conflict remains unresolved for 8-10 weeks, the global economy is more likely to experience a growth slowdown and inflation spike rather than an immediate severe recession.

India's Resilience

Madon is optimistic about India's ability to withstand the global economic turmoil. Despite being unlikely to be completely insulated, India's strong domestic demand and robust pre-war macro fundamentals provide a cushion against global crises. Weaker exports and capital flow volatility may create some pressure, but the overall impact is expected to be relatively contained.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Market Outlook

The recent correction in Indian indices has corrected by ~10–12 percent from their respective 52-week highs. Historically, markets tend to react sharply during the onset of conflicts but recover in cases of short-duration wars. Our base case is that there may be clarity on the outcome of the war over the next 2-10 weeks, which could provide a basis for potential upside in the markets.

Sectors to Watch

Key sectors that are expected to play out post-war rebuilding in the Middle East include:

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

• Energy Security & Transition
• Defence & Indigenisation
• Capital Goods

Sector Opportunities

We are constructive on:

• Energy Security & Transition
• Digital Infrastructure
• Defence & Indigenisation
• Industrial Manufacturing
• Mobility & Urban Development

These sectors offer a combination of earnings visibility, structural tailwinds, and reasonable valuations.

Investment Strategy

We believe it is a good time to gradually accumulate IT sector stocks due to reasonable valuations and evolving dynamics in the AI space.

Commodity Markets

The recent correction in gold and silver prices suggests that some of the euphoria in these commodities may be moderating, at least in the near term.

RBI Policy

We expect the RBI to hold rates in the April policy, as there is still limited visibility on how the current global and geopolitical situation evolves. The Governor's commentary is likely to remain cautious and data-dependent, with a continued focus on inflation risks while keeping growth considerations in mind.