- Correction in Indian equities appears mostly over with downside well protected after consolidation
- Near-term market trajectory depends heavily on evolving Middle East geopolitical situation
- Crude oil is key risk; prolonged conflict may push Brent crude to $100 or higher
Gaurang Shah, Head Investment Strategist, Geojit Investments Limited, says the correction in Indian equities is largely over and the downside from current levels looks “very protected” following the market's recent consolidation.
While he remains positive on Indian equities from a long-term perspective, Shah told NDTV Profit in an exclusive email interview that the trajectory in the near term will depend heavily on how the Middle East geopolitical situation evolves.
He also flags crude oil as the key risk for India, saying a prolonged conflict and meaningful disruption to global supply pipelines could push Brent crude to $100 a barrel or higher. However, he believes India's efforts to diversify its energy procurement, along with stable interest rates, containing inflation and strong economic growth, provide a cushion for the domestic market. Edited Excerpts:
Q. Indian equities have corrected meaningfully in recent months, while valuations remain elevated. How do you assess the risk-reward from here? Does the correction make Indian equities attractive, or is there still room for further de-rating?
Valuations do not look expensive; the market is reasonably valued. The correction is over and there should be no further correction from here. However, it all depends on how the Middle East situation evolves over the next couple of weeks and months. Nobody can pre-empt or judge what the final outcome will be.
That said, the downside from here looks very protected, given the correction we have seen over a period of time and the broad range of consolidation in which the market has been trading over the last couple of months.
It is very difficult to take a call on short- to medium-term trading. But from a long-term perspective, the opportunity looks very attractive, given the macro and micro data points in the domestic market. Earnings have been good, interest rates are stable, inflation is well within the limits and GDP growth is also supported.
Government policies are also reviewed from time to time depending on the situation and how the Middle East geopolitical situation evolves. From a long-term perspective, we are positive on the market.
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Q. India continues to trade at a significant valuation premium despite the correction. What could trigger a further compression in this premium over the next 12-18 months?
On geopolitical fragmentation, it is uncertain when the war is going to get over and what the terms and conditions or memorandum of understanding will be.
In terms of valuations, after the correction, the market looks attractive depending on which sector and stocks you are trying to invest in from a long-term point of view.
Global interest rates and yields are a country-specific problem. I don't think they can have a long-lasting negative impact on Indian equity markets because interest rates here are stable, GDP growth is quite good and inflation is well within the bandwidth.
The only joker in the pack remains crude oil prices, given the fact that India depends 75-80% on imports of crude oil and natural gas, and a large part of it was earlier sourced through the Strait of Hormuz and Middle East countries.
The government has also worked on alternative routes for our energy procurement requirements, and that is working out very well.
FII selling is another particular issue that we have been facing for the last one and a half years or more. That has also kind of scaled down, and over the last couple of weeks, FIIs have been buying as well.
So, these are some of the things which possibly can be a headwind in the immediate short-term period.
Q. Brent crude has moved above the psychologically important $90-a-barrel mark as the US-Iran conflict continues. At what level, and for how long, would higher crude become a serious macroeconomic and earnings risk for India?
If the conflict further escalates, if it prolongs for a long period of time and there is a meaningful disruption in the global supply pipeline, there could be a possibility of crude oil moving to higher levels.
From February 28, 2026, until the time this geopolitical situation evolved, we saw crude at $115-$120 a barrel. From those levels, it came down to $70 and has again climbed to about $90-plus for Brent.
Along with that, India's capability in terms of securing its energy requirements has been at the highest level. The government has gone on record to say that we will source crude oil from whichever country is feasible and offers an attractive valuation, irrespective of what a particular country has to dictate in terms of terms and conditions or sanctions.
From $90, maybe in a week's or 10 days' time, if there is a meaningful resolution, crude oil is going to come down to $70 or below $70. And if the conflict gets prolonged and there is a meaningful disruption in the global supply pipeline, then it can go back to $100 or $100-plus.
How long will it stay there? The whole point boils down to one particular issue: how long the geopolitical situation will last, which again is very difficult to predict.
But we are managing to source our energy requirements from outside the Strait of Hormuz and from the rest of the world.
Q. Which sectors and companies would be the biggest casualties if crude prices remain elevated, and who could benefit?
The sectors that will get impacted include the paint industry, tyre manufacturing companies and aviation. Possibly, all sectors that have a direct or indirect correlation with crude oil prices will get impacted.
Q. With crude prices rising while Indian equities are already under pressure, should investors be concerned about a second-round impact through inflation, the rupee, corporate margins and interest rates?
Assuming that crude oil does not go to $100 and stays below $100 before coming down, there could be no meaningful impact.
As far as interest rates are concerned, the RBI in its recent credit policy has given a clear indication about the stability that India has. Unless and until there is a serious spike in crude oil prices, I don't think there is going to be any meaningful impact on the Indian economy.
At the same time, on the rupee-dollar equation, very recently the RBI allowed the FCNR(B) scheme and a lot of dollars have come into India because of that. The rupee has seen a reasonable amount of strength against the dollar, which was not the case sometime back.
Dollar flows can also come into India through the pre-trade agreements that have been signed by India with various countries, along with FTAs and BTAs. We can expect foreign direct investment that is activated to come into India, which is in dollar terms. That will again stabilise the rupee against the dollar and give us a better situation in terms of forex as well.
Q. India's Q1 FY27 GDP growth came in at 7.8%, ahead of the 7.3% market expectation, while GVA growth stood at 8.2%. Does this stronger-than-expected growth change your outlook for corporate earnings and equities?
Geopolitical and commodity risks are always going to remain, depending upon how the situation evolves.
As far as GDP growth is concerned, short-term GDP growth cannot be taken into consideration when thinking long term. GDP growth rates are more meaningful if we are able to sustain these levels and improve ourselves in terms of the numbers.
Of course, a lot depends upon the base data. But to conclude that GDP growth is only going to go up from here would be a little premature.
The recent GDP numbers were better than overall market expectations. But finally, what matters is what the real GDP numbers are, and on that front, I think India has done reasonably well.
On the same line, there is not a single country in this world that can match India's GDP growth rate shoulder-to-shoulder. So, we are reasonably better.
Even if we have to scale down a little because of rising crude oil prices and inflationary pressure, the run rate is going to be better compared with other emerging markets.
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