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A potential agreement between Iran and the United States to end the ongoing West Asian conflict could lead to a normalization of global energy markets, ease macroeconomic pressures on India and support a broader recovery in corporate earnings, according to a report by Kotak Institutional Equities.
The brokerage said that markets are closely awaiting the final agreement between Iran and the US, which could pave the way for the restoration of normal shipping through the Strait of Hormuz and allow Iran to resume unrestricted oil exports. "We await the 'final' agreement between Iran and the US that could end the ongoing West Asian war. A resolution could lead to further moderation in oil and gas prices and ease pressure on India's macro," the report said. According to the report, the proposed memorandum of understanding (MoU) envisages a permanent end to hostilities, reopening of key shipping routes and a framework for a comprehensive settlement within 60 days. The brokerage expects major stakeholders to remain constructive given their economic and political interests. The report noted that lower oil and gas prices would significantly benefit India's external balances and fiscal position. "A rapid normalization in global oil and gas supply and shipping may ease India's macroeconomic pressures, especially if crude oil prices were to fall below our base-case scenario price of US$95/bbl for FY2027," it said. Kotak estimates that under a base-case scenario of crude oil at USD 95 per barrel, India's current account deficit could remain at 2.2 per cent of GDP in FY27. A sharper decline in oil prices could result in a downward revision to this forecast and reduce pressure on the balance of payments. However, the report cautioned that a weak monsoon remains a key domestic risk. It said forecasts of below-normal rainfall could negatively impact India's growth-inflation dynamics despite relief from energy prices. Kotak has projected India's real GDP growth at 6.1 per cent in FY27 and average CPI inflation at 5 per cent. On the corporate earnings front, the brokerage believes that softer commodity and energy prices may improve profitability across a wider set of sectors, although commodity producers could face earnings pressure. "A sharp reduction in global energy and commodity prices may put downward pressure on India's FY2027E profits, as commodity sectors contribute 40% of our FY2027E incremental earnings growth," the report noted. At the same time, lower raw material costs could boost margins for consumer-facing and investment-linked businesses, while concerns over banking sector asset quality may also diminish. Kotak expects Nifty-50 earnings to grow 18 per cent in FY27 and 14.2 per cent in FY28. It added that financial stocks remain attractive from both macroeconomic and valuation perspectives, even as recent market derating has largely been driven by banking and IT services stocks. (ANI)
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