US-Iran Tensions Cloud Global Markets: Vikas Gupta's Sector Bets Amid Market Uncertainty

US-Iran Conflict and its Impact on Global Markets

The ongoing US-Iran conflict has been a major concern for global markets, with the situation showing no signs of improvement. Vikas Gupta, the CEO and Chief Investment Strategist at OmniScience Capital, recently shared his assessment of the conflict and its potential impact on the financial services sector.

According to Gupta, the financial services sector, which accounts for nearly 31 percent of Nifty 500, is a key area of focus for OmniScience Capital. Within this sector, Gupta is overweight on PSU and private banks, small banks, housing finance companies, and diversified financial services firms. He also likes and is overweight on power generators, some equipment manufacturers, power-focused EPC contractors, and specialized power finance companies.

Comparison of Nifty 50 and Nifty 500

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Gupta's assessment of the US-Iran conflict highlights the significant differences between the two countries' demands. The US wants Iran to become a non-nuclear entity, giving up its enriched uranium, while Iran aims to become a de facto nuclear power. The situation is further complicated by the fact that the US has potential excess capacity for oil and gas, which could benefit the country in case of supply disruptions.

Despite the challenges, Gupta remains optimistic about the long-term prospects of the financial services sector. He believes that companies with intrinsic values below their current market prices could offer attractive investment opportunities. From a 3-5 year perspective, the economy and companies will either adjust to a long-drawn war or the conflict will end, leading to a recovery in the sector.

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FII Inflows and Interest Rate Decisions

Gupta expects strong FPI inflows into Asian markets, including India, if the West Asia situation stabilizes. He believes that the situation would make macros favorable for Asia and India, attracting foreign investors. The RBI and Federal Reserve are likely to revert to their earlier stance of waiting for inflation to cool down before considering rate cuts.

However, if oil prices remain high and/or supplies remain disrupted, the chances of inflation remaining high would lead to rate hikes by both central banks.