Valtrust Strategist Warns of Second-Leg Market Repricing in Event of Prolonged US-Iran Conflict

Market Outlook

The market is currently assuming a swift de-escalation of the conflict, which could lead to a peak in fear if the assumption proves correct. However, if the conflict extends, a second leg of repricing is expected, driven by fundamentals rather than fear.

Economic Impact

A sustained economic consequence of the disruption could lead to a widening of India's current account deficit, rupee pressure, and inflationary pass-through from elevated crude. The market has partially priced in the geopolitical shock but not the full macro impact.

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

Crude Oil and LNG

Approximately 20% of global LNG supply transits the Strait of Hormuz, with Qatar accounting for a significant share. India's LNG-dependent sectors face a parallel supply and cost risk that the market has not yet fully reflected.

Market Expectations

Consolidation in the near term is the base case, with the primary variable being the trajectory of crude. A return to record highs by end-March requires the geopolitical risk premium to compress meaningfully. A 15% return in CY2026 is unlikely in the current environment, requiring a mid-year earnings recovery, continued strength in domestic flows, sustained FPI re-engagement, and no second-order macro surprises.

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

Indian IT Sector

The impact of AI on Indian IT companies is nuanced, with both disruption risk and growth potential. The market has priced some risk but not the eventual upside from AI-led deal flow. Valuations are closely watched, with a potential correction offering a margin of safety.

Economic Growth Projections

If war-related fears ease sooner rather than later, India's FY26 growth estimate of 6.4–6.7% is expected to remain largely intact. However, a scenario where oil averages $90+ for an extended period could trim 25–30 bps from growth.

Key Figures

• India's FY26 growth estimate: 6.4–6.7%
• Crude oil average: $70–75 per barrel
• Current account deficit: potentially widening
• Rupee pressure: expected
• Inflationary pass-through: from elevated crude
• Geopolitical risk premium: expected to compress
• CY2026 return: unlikely to reach 15%
• AI revenue contribution: currently a fraction of total revenue