Iran Tensions Evoke Global Market Concerns, Expert Warns of Domestic Focus

Global Tensions and Emerging Markets

The recent US-Israel coordinated strike on Iran has led to a significant escalation in global tensions. Ankur Jhaveri, MD & CEO - Institutional Equities at JM Financial Institutional Securities, believes that the situation is fluid and any action by Iran can lead to further escalations and global tensions.

Key Investment Strategies

In response to the geopolitical tensions, JM Financial Institutional Securities is advising clients to prioritize investments into strong domestic stories and remain cautious. The firm expects capital to seek safe havens, with sentiments favoring a "risk off" approach.

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Impact on FII Flows

Foreign Institutional Investor (FII) flows are likely to be vulnerable to the current developments, resulting in further pressure on Emerging Markets (EMs) in the short term. However, sustained structural flows are expected to be catalyzed by de-escalations of current global tensions and a revival in corporate earnings.

India-US Trade Deal and Tariff Uncertainty

The successful implementation of the India-US trade deal, which reduced effective tariffs from 50% to 18%, has eliminated the single largest overhang on Indian markets. The US Supreme Court's recent move to curb "tariff weaponization" signals a return to institutional stability, favoring emerging markets like India.

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

Equity Market Outlook

The equity markets are currently in a necessary and healthy consolidation phase, ensuring that markets have enough time for earnings compounding without significant multiple expansion. The primary challenge is moderated earnings, which are compounding at a slower pace than expected. However, if earnings pick up, the market may witness a breakout from the consolidation zone, allowing for multiple expansion.

FY27 Outlook

JM Financial Institutional Securities anticipates FY27 to be a defining year for the Indian economy, characterized by resilient structural decoupling from global headwinds. The firm projects a real GDP growth of around 7% and a nominal GDP trajectory of 10.5%. Corporates are expected to navigate the inflationary environment by protecting their bottom line.

Macroeconomic Indicators

The Government's commitment to fiscal prudence, targeting a 4.3% deficit, is being executed without compromising on growth. The record Rs 12.22 lakh crore capex allocation (3.1% of GDP) provides a massive multiplier effect. With Nifty earnings growth conservatively pegged at 12–16%, it is clear that the corporate sector has already navigated the worst of the global volatility.