Iran Conflict Heightens Concerns of Economic Disruption in 2026

Global Economy at Risk: US-Iran War Impact

Key Highlights

• The global economy is likely to face challenges in 2026 due to the ongoing US-Iran war, with $150 a barrel Brent crude oil price a possibility if the conflict persists.
• Domestically-oriented industries may not be significantly impacted in terms of revenue growth, but margins could be affected, leading to slower earnings growth.
• A quick resolution to the war could bring relief to the global economy, but the longer it lasts, the harder it hits the global economy.

Market Impact

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• The Strait of Hormuz issue is casting a shadow on potential future inflation, but a resolution could be a positive signal for the markets.
• The movement of goods and people is being impacted, resulting in friction in trade and impacting the USDINR.
• Oil & gas prices are affecting industries such as chemicals, paints, and fertilizers, leading to margin compression and slower earnings growth.

Sector Impact

• Most domestically-oriented industries are likely to be impacted by margin compression, leading to muted earnings growth.
• However, if demand is strong, some industries may be able to maintain margins by increasing prices, leading to inflation escalation.

Investment Strategy

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• The typical quality stocks are still expensive, with many FMCGs trading at a PE of 50+.
• The data center ecosystem theme is bullish, but finding mispriced companies will be challenging.
• The power generation ecosystem has many mispriced companies that are being ignored, offering a high-growth opportunity.
• AI-disruption is still being priced in, with a bi-directional impact on IT stocks.