He noted that by February, most macro concerns had already been absorbed by the market, including progress on trade deals with the US and Europe, and expectations of double-digit nominal GDP growth along with mid-teen earnings growth after a subdued phase. However, the recent Iran–US conflict and the resulting sustained rise in crude prices over the past few months have reintroduced macro pressure, with potential implications for India’s current account deficit, inflation, and marginally even GDP growth. While acknowledging the possibility of some earnings cuts due to higher crude, he emphasized that India remains in a stronger position compared to past stress periods such as 2013, and still retains the potential for double-digit earnings growth in FY27.
He added that Q4 earnings have been relatively broad-based and better than earlier quarters, although Q1 could see some impact in select sectors due to elevated oil prices, making crude the most important variable to watch going ahead.
On the FY27 earnings outlook, Lakshmanan said consensus estimates are broadly in the mid-to-high teens range, though there could be some moderation at the index or large-cap level due to commodity pressures. He pointed out that while certain sectors may face margin pressure from higher crude and input costs, nominal revenue growth could remain strong due to inflation returning and overall higher nominal economic activity. On demand conditions, he said inflation is unlikely to spike meaningfully as the economy was earlier coming off a low inflation base, keeping overall conditions manageable. However, he flagged monsoon trends as an important near-term risk, noting that if rainfall comes in below the long-term average, food inflation could temporarily rise and add some pressure to consumption.
On sector allocation, he remained positive on financials, particularly private banks and insurance, citing their strong long-term return ratios, attractive valuations relative to history, and the ability to grow consistently above nominal GDP as seen over the past three decades. He also highlighted that rising interest rates could further support profitability in the banking sector. Despite concerns about high domestic investor ownership in financials, he maintained that valuations and fundamentals remain the primary drivers of his investment thesis rather than fund flow dynamics, which he said are inherently unpredictable and should not guide long-term positioning.
He continued to hold an overweight stance on IT stocks, calling it a contrarian call given weak Street positioning. According to him, Indian IT companies continue to generate strong ROCEs and cash flows, while returning a large portion of earnings via dividends and buybacks, offering attractive yield support. He also highlighted that even modest rupee depreciation provides additional earnings visibility. While acknowledging concerns about slower constant currency growth and fears of disruption from AI, he argued that IT services companies are still likely to play an important role in AI implementation, and historical transitions such as ERP and cloud shifts have not structurally disrupted long-term growth trajectories.On healthcare, he said mid and small-cap companies offer better growth opportunities compared to large-cap names, which are relatively mature and offer steadier expansion. In capital goods, he acknowledged strong near-term momentum driven by power sector demand, transmission and distribution opportunities, and potential long-term tailwinds from data centre-related capex. However, he cautioned that valuations in several capital goods stocks have run up sharply, already pricing in high growth expectations, and advised a more selective, bottom-up approach rather than broad sector optimism at current levels.Finally, on capital flows, he stressed that market positioning should not be based on assumptions around FII or domestic inflows, as these are highly unpredictable and can shift quickly. Instead, he reiterated that investment decisions should remain anchored in fundamentals, earnings visibility, and valuation comfort. Overall, his view suggested that while near-term volatility from crude oil and inflation risks cannot be ignored, India’s broader earnings cycle into FY27 still points toward steady growth, with selective sector opportunities continuing to drive market returns.
-1024x683.jpg "Soft Words, Big Sticks, and an Endgame in Iran")
