Over the last couple of years, two key benchmark indices, the Nifty 50 and Sensex, have delivered near-zero returns. In FY’26, the indices plunged 5 per cent and 7 per cent amid heightened volatility and significant foreign portfolio investor outflows. The Russia-Ukraine and Israel-Palestinian conflicts have been followed by the war in West Asia this year, bringing the world economy to its knees as crude oil prices went through the roof. While investor wealth has been eroded, corporate earnings are also under pressure. In this backdrop, Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments, spoke to businessline on the way forward. Excerpt:
Given the current geopolitical turbulence, how long will it take for markets to rebound?
The market rebound will depend on the duration of the conflict in West Asia. If there is an immediate de-escalation in the conflict, the markets will rebound sharply on the news. If the war prolongs and crude prices remain above $100 a barrel for an extended period, recovery will be delayed by months. Worse, if the conflict escalates and crude further spikes above $120, the market will fall further. Everything boils down to the duration of the war. The IPO market may remain subdued till the secondary market revives. Only fairly valued IPOs will get subscribed.
Will the rupee depreciation impact the government’s fiscal strength?
The Government’s fiscal strength will be impacted by the steep excise duty cuts taken after the crude price spike. A higher fiscal deficit will be inflationary. Rupee depreciation has the potential to trigger further FPI outflows, which, in turn, will further depreciate the currency. The main concern is how to finance the rising Current Account Deficit amid sustained FPI outflows.
What are corporate earnings expectations for FY’27? Which sectors do you see as best and worst performers?
Earnings in FY27 will depend on how long the war lasts. If the war continues for, say, one more month and the crude price remains above $100, India’s macro indicators, including GDP growth, will take a hit. In such a scenario, the pre-war estimate of around 15 per cent earnings growth will not materialise. On the other hand, if there is de-escalation or the end of the conflict, 12-14 per cent earnings growth is achievable. Financials, automobiles and auto ancillaries, defence, capital goods, capital market-related stocks and pharmaceuticals will do well. The FMCG sector is likely to be under pressure.
Given inflation and job losses, do you expect consumption to slow in the coming months?
Inflation is yet to impact consumption. During the last year, inflation has been benign. The Government has not passed on the higher crude cost to consumers, but if the crude price remains elevated for another month, at least a partial pass-through will occur. Then inflation will rise, which will impact consumption. Job losses are sporadic and not widespread. Beaten-down segments such as financials, automobiles and blue chips from across segments will benefit once the markets bounce back. IT has corrected sharply following the Anthropic shock. The IT sector is due for a rebound in April, following results that are unlikely to disappoint.