The Indian stock market has crashed amid the turbulence triggered by the US–Iran war in the Middle East, soaring crude oil prices and tariff tensions as investors are grappling with heightened volatility across classes.
In an interview with Livemint, Avinash Agarwal, Head–Equity at Bandhan Life, shares his views on navigating uncertain markets amid the US-Iran war, the outlook for crude’s impact on India Inc., opportunities in banks and consumption, midcap valuations, IT sector prospects, and what could bring FIIs back.
Here are edited excerpts:
Q. How should investors navigate the markets amid heightened volatility driven by the ongoing US–Iran war and global tariff uncertainties?
A. High volatility can be unsettling to investors. However, it is during these times that we may get good opportunities to invest. The important thing is to maintain discipline and invest consistently irrespective of market conditions so that your cost averages over a period. Also, it has been proven that it is more important to spend more time in the market than trying to time the market. Markets compound wealth over time, and hence we should be consistent with our investments.
Q. Brent crude prices are hovering near $100. Do you expect elevated energy prices to have a prolonged impact on India Inc.?
A. In the past we have seen crude oil prices spiking up for a short period of time and then cooling off. We have to see if the prices sustain for an extended period. If it does, then there will be some impact on most companies. However, over time it should get absorbed. During the 2011-14 period we had oil staying near or above $100 per barrel, and it had impacted our economy.
However, we must understand that the impact of crude oil price has reduced materially since then, as our economy has grown much faster than our consumption of oil. However, the more important development will be the availability of products. Today we are seeing a shortage of several products. If this continues for some time, then it could result in production disruption.
Q. In the current weak global environment, which sectors do you believe offer the most attractive risk-reward opportunities for investors?
A. Given the volatile situation in the global markets we believe it is better to be in domestic economy related sectors. The domestic economy is stable and growing at a steady pace. We believe the credit cycle is still good and banks could do reasonably well from here. Also, with the government incentivising consumption, we believe the consumption sector could see a positive uptick in demand going forward. However, given the volatile situation right now we need to monitor the developments closely.
Q. What are your expectations for the Q4 FY26 earnings season, particularly in the context of global slowdown concerns?
A. Q4 FY26 results will get impacted for a few sectors like travel and tourism, infrastructure companies, etc. due to the US-Iran war in the Middle East. For some of the other companies, the impact may come in Q1 FY27, as they may be holding old inventories at lower cost. Hence, the results could be mixed in Q4 FY26, as some sectors would gain while some could get impacted adversely.
Q. Midcap and smallcap stocks have seen a sharp correction recently. How do you assess valuations in this segment, and where do you see potential investment opportunities?
A. Yes, mid-caps and small-caps have corrected over the last 15 months or so. This has made the valuations more reasonable. Also, we have seen some earnings cuts take place over the last few quarters. We were set to have better growth in FY27 prior to this war. We will have to see how the war progresses to understand the earnings trajectory.
However, from a medium- to long-term perspective, we believe that investors need to be in this segment as the growth rates are better here. While the price-to-earnings (P/E) ratio looks high, we believe it should be seen in the context of growth, and hence, we look at it on the PEG ratio (P/E divided by growth). On a PEG basis, midcaps are currently trading at attractive levels relative to large caps.
Q. What is your outlook for the IT sector? Do you believe the recent correction presents a bottom-fishing opportunity for investors?
A. The IT sector has seen a reasonable correction and has not given any returns in the last three years post this correction. There is certainly a major challenge in front of the sector in the form of Artificial Intelligence (AI). However, we will know the actual impact over a period.
Moreover, the sector has faced similar challenges in the past and adapted well to them. While there will be some impact, the companies will do well if they are willing to adapt to the changes (like they have done in the past). We believe the fear levels are elevated now and could subside over a period. We have a neutral view on the sector as of now.
Q. What key triggers could bring FIIs back into the Indian equity markets?
A. There were two major reasons for the FIIs to reduce their exposure to India. One was the AI trade, where they could find players in other countries such as Taiwan and Korea. The second reason was valuations – India was trading at a high premium to other emerging markets. As the AI trade picked up, the FIIs found faster-growing companies at lower valuations in other countries and hence shifted their positions.
The valuation premium of India over other emerging markets has already corrected and is at historical levels. We believe that whenever the AI trade reverses, India will be a beneficiary, and we should see FIIs coming back.
Q. What is your 6–12 month outlook for Nifty 50 and Sensex amid recent declines triggered by the US–Iran conflict and rising crude oil prices?
A. Prior to the war we were expecting low- to mid-teens earnings growth for FY27. We have to see if this changes based on how the war situation develops. We have corrected about 10% from the top and have seen some time correction as well. The valuations have become more reasonable. Hence, irrespective of how the war situation develops, investors should continue to invest, as the starting point is reasonable. Over a period, returns should be decent from here.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
