Investors Advised to Deploy Capital with Caution Amid West Asian Uncertainty, Expert Suggests Strategic Allocation to Attractive Sectors

Market Watch: Expert Sees Opportune Time to Invest Amid Uncertainty

The situation surrounding the Gulf-related developments continues to pose significant risks to the Indian market, but experts believe that it is an opportune time to start deploying capital in a calibrated manner. Shailendra Kumar, Chief Investment Officer at Narnolia Financial Services, emphasizes the need to closely track the situation until there is concrete evidence of a genuine resolution.

The balance of probabilities and risk-reward across scenarios suggests that this is a compelling time to invest in certain sectors. Autos, consumer-facing businesses, financials, EMS, defense, pharma, and data centre-linked stocks are attractive from an investment perspective, according to Kumar. These sectors have the potential to benefit from the ongoing economic recovery, despite the recent setbacks.

The Indian market has been in a corrective phase for nearly eighteen months, with the MSCI India Index materially underperforming the MSCI Emerging Markets Index. This indicates that a substantial amount of excess optimism has already been unwound. The Nifty's trailing twelve-month P/E recently corrected to 19.6, which is a level that has historically been a compelling entry point for long-term investors.

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The economic recovery that had started to take shape earlier this year has faced a setback due to the recent Gulf-related developments. However, the balance of probabilities and risk-reward across scenarios suggests that this is an opportune phase to start deploying capital in a calibrated manner. Kumar is cautiously optimistic about the situation, citing recent commentaries from the US and Iran that suggest a possible de-escalation.

Management commentaries for Q4FY26 earnings will be closely watched for clearer cues on earnings trajectories for FY27. Demand trends reflected by consumer companies, signs of rising financial stress highlighted by financials, and on-ground updates from companies such as Larsen & Toubro on project execution, particularly in the Gulf region, will be critical monitorables.

The impact of the war is likely to be limited to Q1FY27 earnings, with elevated prices and under-recoveries for OMCs, along with margin pressures across several industries, persisting through the quarter. However, availability constraints on natural gas are expected to ease by the middle of the quarter, while the LPG situation could remain more challenging for longer if conditions around the Strait of Hormuz do not improve.

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The Nifty IT Index, on a trailing twelve-month P/E basis, is now trading close to that of Nifty despite its underlying earnings growth likely remaining lower than that of the broader market. While the current pace of rupee depreciation is expected to sustain for much longer, earnings upgrades in the IT sector are not expected.

We remain constructive on quality stocks, particularly as valuations across many large-cap quality names have turned highly attractive. Notably, the Nifty FMCG Index is now trading near its 15-year valuation lows. A large part of India's quality universe is domestic consumer-facing, and if the monsoon remains favourable this year, we expect a meaningful demand revival across several of these businesses.

At this point, we find autos, consumer-facing businesses, financials, EMS, defense, pharma, and data centre-linked stocks attractive from an investment perspective.