West Asia Conflict May Significantly Impact FY27 Nifty EPS Growth: Shriram Life CIO Assessment

West Asia Conflict's Impact on Indian Equities: A Mixed Outlook

The ongoing West Asia conflict has had a significant impact on India's equity markets, with earnings growth expectations revised down sharply from mid-double-digit to high single-digit for FY27 Nifty EPS. According to Ajit Banerjee, President and Chief Investment Officer of Shriram Life Insurance, the direct impact of the conflict on earnings growth this fiscal may not remain limited at less than 5 percent and could be significant enough for FY27 Nifty EPS.

However, despite the near-term challenges, the structural outlook for Indian equities remains favourable over the long term, assuming the US-Iran conflict moves towards a meaningful resolution over the coming months. Banerjee believes that the probability of revisiting April lows remains, but near-term volatility may persist.

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The conflict has had a ripple effect on the Indian economy, with higher crude prices, pressure on costs, rupee weakness, and softer demand sentiment impacting earnings growth. The Nifty level has seen broad-based cuts in earnings estimates across sectors, with expectations revised down sharply from mid-double-digit to high single-digit.

While the weakness appears more cyclical and geopolitics-driven rather than structural, assuming tensions ease over time, earnings growth could see a more meaningful recovery in FY28. However, FY27 results may not be as per earlier expectations.

India's dependence on imported crude remains a key macro vulnerability, with over 85% of its crude oil requirements met through imports. Elevated oil prices, which could remain structurally elevated due to lingering demand-supply imbalances, restoration timelines for disrupted capacities, and countries rebuilding strategic reserves, could have multiple impacts on the Indian economy and corporate earnings.

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Stability and predictability in crude prices are essential for foreign investors, as they provide comfort around India's macro outlook and earnings trajectory. Elevated geopolitical uncertainty and volatile oil prices generally push FIIs towards safer asset classes or markets with lower macro sensitivity.

While valuations have corrected from a premium zone to a more reasonable level, with the Nifty trading at around 19.5x 1-yr forward PE vs. 10-year average of ~21x, they cannot be viewed in isolation. A durable return of foreign capital would likely require a combination of reasonable valuations, stronger earnings growth, softer crude prices, and a more stable global macro environment.

Finally, the International Energy Agency has warned that global oil markets would remain severely undersupplied through the end of the third quarter of calendar year 2026, even if conflicts end by early June. However, if Russian crude oil supply can continue, and supplies from Brazil, Nigeria, Venezuela, and Congo can come to the market, future oil supply can increase, leading to cooling in the crude price in the future.

In the telecom sector, leading players are widely expected to undertake a tariff hike in the range of 15-20 percent in the H2 of FY27.