Geopolitical Risks Weigh on Equity Markets

The Indian equity markets may struggle to sustain a meaningful rally until geopolitical risks recede and commodity markets stabilize, according to Venkatesh Balasubramaniam, Managing Director & Head of Research at JM Financial Institutional Securities.

The primary concern for India is the potential impact on energy security and crude oil prices. Although oil prices have retreated from recent highs, they remain elevated relative to historical averages. The risk of sustained high energy prices could widen macroeconomic vulnerabilities, including inflationary pressures and the current account deficit.

Table: Crude Oil Price Comparison

Read also: Zaveri Bazaar's Gold Courier System Thrives Without Digital Infrastructure

The moderation in crude oil prices from recent highs suggests that markets are assigning a lower probability to a severe escalation of the conflict. However, crude oil is likely to remain highly sensitive to geopolitical developments in the region.

A rate hike at this juncture would be counterproductive given the moderating pace of domestic economic growth, according to Balasubramaniam. While inflation is expected to rise gradually, it is likely to remain within the RBI's tolerance band during FY27.

The RBI has multiple tools available to address currency volatility without resorting to tighter monetary policy. Accordingly, we expect the RBI to maintain a pause on policy rates in the near term.

Read also: The Indian Rupee Hits 100 Against the US Dollar: A Milestone in Economic Turmoil

We remain constructive on auto OEMs and relatively less constructive on auto ancillary companies. Vehicle demand remains resilient despite price increases, supported by healthy replacement demand, premiumisation trends, and improving consumer sentiment.

Table: Auto Sector Performance

We continue to maintain a positive outlook on the healthcare sector, with a preference for diagnostics, hospitals, and select pharmaceutical companies. Hospitals are benefiting from capacity expansion, improving occupancy levels, and sustained growth in average revenue per occupied bed.

Within pharmaceuticals, our approach remains fundamentally driven and stock-specific. We favour companies where earnings visibility is strong, product concentration risks have moderated, and valuations remain reasonable. We also remain structurally positive on the CRDMO segment, supported by global supply-chain diversification, increasing innovation-led outsourcing, and stronger engagement with global pharmaceutical companies.

Table: Large-Cap Pharmaceutical Companies