US-Iran Tensions: Market Experts Caution Against Premature Earnings Outlook Adjustments

Market Outlook for Indian Equities Amid Ongoing Conflict

Key Takeaways:

• Pradeep Gupta, Executive Director and Head of Investments – India at Lighthouse Canton, believes the bulk of the consolidation and correction is behind Indian markets.
• Indian markets have seen prolonged time and price corrections over the last 18–20 months, and the ongoing conflict is likely to keep markets depressed in the near term.
• Risk-Reward Skew: The overall risk-reward for Indian markets is skewed to the upside for those with the stomach to ride through near-term pain.

Market Impact:

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• The ongoing conflict is likely to drain overall sentiments, and it's too early to take any constructive view on earnings derating or macro distortions.
• Oil Prices: The magnitude and duration of the conflict will determine oil prices, which could rise above $100 per barrel if disrupted for a prolonged period.
• OPEC Supply: Additional 2 million barrels supply by OPEC will partly offset near-term pressure on oil prices.
• Indian Rupee: The INR is highly sensitive to oil price shocks, which could impact the import bill, current account deficit, and inflation trajectory.

Investment Strategy:

• Buy Quality Counters: The current crisis provides a tactical window to build exposure in quality counters with secular earnings predictability and margin of safety.
• Crude-Sensitive Stocks: Oil marketing companies may experience margin compression, while refiners and fuel retailers could face volatility.
• Fundamental Overlay: A fundamental overlay on opportunities in oil exploration companies is recommended.

Economic Projections:

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• Earnings Estimates: It's too early to revise earnings estimates or economic growth projections in light of the US-Iran tensions.
• Macro Distortions: The ongoing conflict is likely to drain overall sentiments, and markets will make rapid adjustments depending on how the war unfolds.

Risk Assessment:

• Indian Rupee: The INR has already weakened past 92 per dollar, and there's a heightened risk of negative developments.
• FPI Outflows: FPI outflows from Indian equities can intensify due to risk aversion.
• Remittances: Remittances from Indians working abroad can take a hit in the short term.