Investors Advised to Exercise Caution at Market Index, Focus on Strategic Sector Investing

Market Outlook: Impact of West Asia Conflict on Indian Economy

Key Takeaways:

• Asit C Mehta Investment Intermediates recommends selective investment in specific stocks, particularly in sectors such as gas distribution companies and infrastructure, which have seen sharp corrections due to the ongoing conflict.
• The conflict is likely to resolve sooner or later, and these sectors could return to their earlier revenue levels within a short time frame.
• The potential impact of the Strait of Hormuz crisis on crude oil prices could lead to elevated levels for an extended period, affecting the economy and various sectors.

Earnings Estimates:

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• Downward revision in FY27 earnings estimates is expected due to the Iran conflict, with the extent of revision dependent on the duration of the conflict and the return of oil prices to sub $75 per barrel.
• The conflict may impact Q4FY26 earnings in selected spaces, with a potential lag effect on services.

Market Valuations:

• Market valuations are relatively attractive compared to six months ago, but this attractiveness will depend on the duration of the conflict and the return of global oil supplies to normalcy.

Investment Strategy:

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• Siddarth Bhamre, Head – Institutional Research at Asit C Mehta Investment Intermediates, recommends a selective investment approach, with a portion of available cash allocated to specific stocks in sectors such as gas distribution companies and infrastructure.

Key Challenges:

• The West Asia conflict will exacerbate existing challenges, including:
  • Disruption to IT and other sectors with increased adoption of AI
  • Inadequate capital expenditure from the private sector
  • Moderating consumption levels
  • FIIs outflows
  • Depreciating rupee

Monetary Policy:

• The Reserve Bank of India is likely to keep interest rates unchanged for the remainder of 2026, given the uncertain and volatile environment and the limited impact of interest rate changes on inflation and growth.