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The US midterm election outcome could ease crude oil prices and improve India's macroeconomic stability, while Q2FY27 corporate earnings may bolster investor confidence in domestic equities, according to a report by Kotak Institutional Equities.
Kotak noted that the Nifty 50 companies reported a 19 per cent year-on-year increase in net profits during Q2FY27, with similar growth trends observed in EBITDA. The report added that the positive trend was also reflected in net profits and EBITDA after adjusting for the oil, gas and consumable fuels sector. We expect FY2027E and FY2028E net profits of the Nifty-50 Index to grow 20%, the report said. As per Kotak, market's risk-reward balance remains favourable, with valuations across most segments ranging from attractive to fair despite the recent rebound, although certain investment-related sectors continue to trade at elevated valuations. Highlighting the implications of the US midterm election results, the report noted that the outcome reflected widespread voter dissatisfaction over the rising cost of living and inflation. It pointed out that economic concerns, particularly affordability and the cost of living, dominated voter priorities in almost all opinion polls conducted ahead of the elections. We note that high oil prices, a fallout of the Iran-US war, has been the primary reason for high inflation, it said. The report further highlighted that real wages in the US have stagnated over the past few months, while the unemployment rate has remained broadly stable, even as non-farm payroll additions have been uneven. Amid this scenario, Kotak expects India's macroeconomic position to improve significantly over the next few months as crude oil prices return to normal levels amid an anticipated improvement in the global supply-demand balance. In our view, the outcome of the US midterm elections could result in (1) more stable geopolitics and (2) lower crude oil prices, it stressed. At the time of reporting, Brent crude was trading at around USD 99.82 per barrel while crude oil was trading at around USD 91.52 per barrel. It further highlighted that crude oil supplies from the Middle East have improved considerably in recent months despite Iran's blockade of the Strait of Hormuz, while Iranian oil exports have declined sharply due to US restrictions on its shipments through the strategic waterway. Overall, the elections may provide more clarity and stability to Indias macroeconomic position, while 2QFY27 results should provide more comfort about Indias earnings, it said. (ANI)
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