India’s earnings outlook was highly optimistic at the start of FY27, driven by expectations of a revival in domestic demand across government spending, private investment and household consumption, after its slowdown during FY25-26. The West Asia crisis, which began in March 2026, was initially seen as a short-term disruption, but it is still persisting.
Meanwhile, the March quarter delivered healthy corporate earnings, slightly ahead of forecasts, reiterating positivity on FY27. High-frequency indicators for April and May showed strong momentum. Gross GST collections hit an all-time high of ₹2.42 lakh crore in April and grew 3.2 per cent Y-o-Y in May. HSBC Manufacturing PMI rose to 55.0 in May 2026, while auto sales remained robust, with the top four passenger vehicle makers reporting around 25 per cent Y-o-Y volume growth in May.
Despite this strength, FY27 is beginning to show signs of pressure on operating efficiency, corporate earnings and fiscal stability. India’s WPI rose sharply to 8.3 per cent in April 2026 from 0.83 per cent in December 2025. The prolonged US-Iran conflict and renewed escalation in the Russia-Ukraine war are weighing on the economy.
Over the last six months, the market has fallen more than 10 per cent, reflecting persistent increases in crude prices, currency weakness, trade-related disruptions, and rising inflationary pressure on both corporates and households. The market has priced in some of this risk, but whether it has fully accounted for the potential damage remains debatable.
Both conflicts and trade politics (the US & China) have disrupted global capacity and supply chain. Availability of key inputs such as oil & gas, chemicals, metals, and soft & hard commodities is becoming dearer. These disruptions are feared to persist and raise operating costs for import-dependent economies such as India. The impact is expected to be most severe in Q1 FY27, followed by a more sector-specific effect from Q2 onward.
Since March, FY27 EPS estimates for the Nifty 50 have been downgraded by only 2-3 per cent. For context, India’s crude basket averaged about $67-68 in FY26, while the average over the past two months has been around $103. Even if prices ease to about $85 on the back of a peace deal, the economic impact on India is likely to be greater than what the market currently expects. The government has tried to contain the damage by allowing oil marketing companies to absorb much of the cost, but this approach is changing, given the potential fiscal burden.
Although the market has consolidated, the overall reaction is modest, largely because investors still assume that the economic fallout will be temporary and is supported by strong domestic inflows.
The market has remained relatively resilient, supported by better-than-expected March quarter results, healthy demand indicators and a rebound in domestic inflows since April. Heatwave and weak monsoon forecasts are the other risks on the horizon for FY27.
While the sustainability of elevated crude and other commodity prices, and their full impact on Q1 and subsequent quarters, still needs to be assessed more proactively.
On the positive side, India’s valuation has corrected meaningfully, with the one-year forward P/E falling from 21x in March to 18x, limiting downside risk. A truce in the offering is keeping liveliness in the market.
First published in Business Standard.
