Nimesh Chandan Downgrades FY27 Earnings Forecast, Maintains FY28 Outlook

War in West Asia: Impact on Indian Earnings and Markets

The ongoing war in West Asia is casting a shadow over India's economic growth and earnings. According to Nimesh Chandan, Chief Investment Officer at Bajaj Finserv AMC, there may be a small downgrade in FY27 earnings estimates, but FY28 estimates may not be affected much. However, every passing week beyond this quarter that the war continues will further put pressure on earnings.

India's vulnerability to supply shocks due to its reliance on oil and gas imports from the Middle East makes it susceptible to the economic implications of the war. The uncertainty surrounding the duration of the conflict is a major concern for investors, and it is likely to lead to near-term volatility. However, patient long-term investors may find opportunities to invest in companies with good long-term potential at low valuations.

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The impact of the war on India's inflation and economic growth numbers is likely to be transitory. It should be viewed as a speed bump in the otherwise healthy long-term trajectory of the country. The precise impact would depend on the duration of the conflict.

Bajaj Finserv AMC is keeping a close watch on Brent crude oil futures, which are currently trading in backwardation. This indicates that investors are betting on a resolution of the crisis within the next few months. Many companies also carry raw material inventories, which may be used in the short term, cushioning the margin impact.

The Indian equity markets outperformed other emerging markets by more than 60 percent between 2020 and the peak in September 2024. However, following the war, tariffs, and currency depreciation, the Indian market became expensive. Now, following the ceasefire, the currency appears to have stabilised, and earnings growth is on an upward trajectory. Hence, Bajaj Finserv AMC expects FII flows to be favourable in the coming year.

Bajaj Finserv AMC is positive on the energy sector and has both coal-related and renewable energy stocks as part of its investment universe. The IT sector is currently underweight, with concerns about a slowdown in the US economy and the potential disruption caused by AI. While valuations have become attractive, upside is likely to be capped due to these concerns.

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