Q4 Earnings in Line, Double-Digit Growth in FY27 Remains a Possibility if Oil Prices Correct Soon, Says Harsh Gupta Madhusudan

US Federal Reserve Meeting and Market Expectations

The recent Q4FY26 earnings are broadly in line, according to Harsh Gupta Madhusudan, author and fund manager at PIPE at Ionic Asset. He expects FY27 to see overall double-digit earnings growth, assuming crude prices correct soon.

Market analysts believe that a deal or de-escalation has been partially baked into the equity markets, as well as in forwards of the crude market (backwardation), but less so in the bond markets. This suggests that markets are not pricing full peace, but rather a managed truce with intermittent escalation.

US Federal Reserve Meeting and Inflation Concerns

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

The US Federal Reserve meeting has highlighted the dilemma faced by the FOMC, with three hawkish dissents regarding future rate cuts despite holding rates steady in April. This shows that the institution is no longer a consensus body. The Fed Chair's commentary has also sparked concerns about inflation and growth following the West Asia conflict.

Inflation has remained above the 2 percent target for around five years and is currently around 3 percent. The US labour market is weak but not in distress, and elevated energy prices from the Iran war are a key complication. The Fed's base case is that the supply shock should fade over time, but retaining inflation credibility is key. Growth fears are secondary at present, but could quickly change if the blockade continues.

Earnings and Market Performance

The March quarter earnings announced so far are broadly in line with expectations. Private banks are steady, FMCG is showing a rural-led recovery, and pharma and parts of NBFCs are softer. IT guidance remains very soft in constant currency terms, but better in rupee terms. The overall breadth supports the structural thesis, and assuming crude corrects soon, a double-digit earnings growth in FY27 is expected.

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

Energy Transition and Biofuels

The West Asia crisis has accelerated the long-term energy transition and autonomy story. India is expected to significantly shift towards biofuels and electrification in the coming years. The country was already moving towards ethanol blending (E20+), biogas, and EVs (electric vehicles) before the crisis. Now, ethanol blending is expected to push past 25 percent, biofuel capacity to scale, electrification to accelerate, and coal gasification to get a new push.

Power Financiers and Regulated Utilities

Within the energy-finance complex, sequencing matters. Power financiers with quasi-sovereign backing and narrow mandates could compound well for several years with limited derating risk. Cables and wires benefit from grid investment, but the theme is discovered, and competitive intensity is rising. Regulated utilities offer an interesting risk-adjusted return and high cash-flow visibility for a more conservative investor.

RBI's Expected Credit Loss (ECL) Norms

The RBI's ECL norms, set to be implemented from April 1, 2027, will force forward-looking provisioning aligned with international standards. The RBI has held the line on prudential floors despite bank pushback. Earnings impact in FY28 will be concentrated in unsecured loans, MFI (microfinance institutions), and auto, while HFCs (housing finance companies) say they should be relatively insulated. With the capital impact phased over years, it will be a net-net positive transition.

IT Stocks and AI Impact

The worst of the de-rating in IT stocks is probably behind us, with Nifty IT having fallen by around a quarter YTD, trailing PE around 20, and forward yield around 4 percent. AI could compress 10 percent of revenues over say 3 years, even if the impact on margins goes a bit further. If so, this may be manageable. The next leg requires evidence that Indian majors are capturing AI-led delivery work at scale.

US-Iran Peace Deal

A deal or de-escalation has been partially baked into the equity markets, as well as in forwards of the crude market (backwardation), but less so in the bond markets. Markets are clearly not pricing full peace, but rather a managed truce with intermittent escalation. With Trump due to meet Xi in two weeks and US midterms due in a few months, this seems to be the right base case, though various scenarios are possible.