While it remains premature to draw firm conclusions, this environment could pressure the earnings outlook, with an initial estimate of a 2% to 6% drag, depending on the trajectory of crude and macroeconomic developments in Q1FY27.
US President Donald Trump appears intent on bringing the conflict with Iran to a close. With the midterm election in November approaching, a prolonged escalation would likely heighten risks to the US economy via weaker consumer sentiment and adverse voter perception. The most constructive outcome would be a negotiated arrangement between Iran and the US; however, the probability appears limited given the scale of damage to Iran’s public infrastructure and the stringent demands articulated by the US and Israel.
Moreover, both Israel and Iran are operating under divergent objectives—Israel appears inclined to continue the conflict across Iran and Lebanon, a stance reportedly supported by several Gulf nations. Iran, in contrast, is seeking assurances against future strikes and compensation for losses.
Trump has indicated a 2–3-week timeframe to end the war while simultaneously acknowledging the risk of further assaults. At this stage, the objectives remain unclear—whether the focus is on control of oil assets, shipping routes, or uranium-related facilities. Consequently, while the headlines initially supported risk-on sentiment, the move proved difficult to sustain amid conflicting narratives about how the war would proceed. This dynamic may translate into heightened volatility through April, even as it keeps the prospect of de-escalation alive.
Crude briefly attempted to slip below $100 per barrel, an encouraging signal, but failed to hold those levels as the US troop presence in the region continued to rise and fresh supply concerns resurfaced. Overall, sentiment remains highly headline-driven, with markets likely to oscillate between relief rallies and renewed risk-off waves depending on geopolitical developments.
US-Iran war: Key implications for stock market
This short-lived conflict now seems increasingly likely to extend into April, raising the risk of spillover effects on FY27 earnings forecasts. The domestic market’s decline in March resembles a deliberate correction—down 11.3% MoM and 15.3% from the Nifty 50’s 52-week high. The key consideration is duration: the longer the conflict persists, the greater the potential economic and earnings damage.
In the early phase of the conflict, the market was factoring in India’s FY27 earnings growth in the 14% to 16% range. This was expected to exceed FY26 on the back of a revival in government and private-sector spending, alongside a rebound in consumer demand. It was also assumed that downgrade risk would remain contained, given expectations of a limited conflict duration and a modest impact on crude prices.
Given the extent of damage to regional oil infrastructure and the risk that near-term rhetoric continues to support hostilities, crude prices are likely to remain elevated in FY27 relative to the FY26 average of $69/bbl. While it remains premature to draw firm conclusions, this environment could pressure the earnings outlook, with an initial estimate of a 2% to 6% drag, depending on the trajectory of crude and macroeconomic developments in Q1FY27.
Persistent earnings downgrades, as observed in FY25 and FY26, would also weigh on India’s premium valuation. In this decade, India has traded at an average one-year forward P/E of 20x, materially above the 2010–2020 average of 15x.
At the start of the year, we maintained a constructive stance on equities, with a Nifty50 target of 29,150 for December 2026, based on a 20.5x one-year forward P/E—slightly above the new-age average. The current set-up suggests the potential for both an earnings downgrade and a valuation de-rating, with limited visibility on the magnitude. A preliminary assessment implies an average 4% reduction in India’s EPS, which would translate into a revised target of ~26,600, assuming a 1x compression in the forward P/E to 19.5x.
Overall, the medium-term set-up looks constructive. Based on Thursday’s close, a nominal return of 15% to 20% appears feasible, assuming the conflict concludes during April to May. The decline should continue to attract value buying, which has already been evident in recent sessions. The sell-off has extended into April and has taken the Nifty 50 index to a new intraday low of 22,182, which is 16% below the 52-week high recorded in January. Nearly 65% of Nifty500 index stocks have corrected by more than 30%, underscoring the extent of damage; this could reverse meaningfully if value buying accelerates as crude prices stabilise. Near-term risk remains centred on the final phase of US action and Iran’s response, which could further influence crude prices.
Fist published in Mint.