According to a recent JP Morgan report, global equity markets may find support from resilient corporate earnings even as concerns around stagflation continue to weigh on investor sentiment. The report pushes back against the widely held bearish narrative, noting that fears of a stagflationary environment are marked by slowing growth and tighter liquidity, may be overstated. The bearish equity market views revolve around stagflation narrative... We continue to disagree with both, highlighting a divergence between market sentiment and underlying fundamentals. Aggregate earnings projections for 2026 are continuing to move up not just in the US, but in most places, suggesting that earnings momentum remains broad-based across regions and sectors. While the Energy sector has seen strong upgrades driven by elevated oil prices, gains are not confined to it alone, with several other sectors also witnessing positive revisions. The outlook for oil prices remains a critical variable, with JP Morgan noting that Brent crude averaging around USD 100 per barrel would still be compatible with further earnings upside, unless geopolitical tensions escalate significantly and trigger widespread downgrades.
According to The Economic Times, Baroda BNP Paribas' Jitendra Sriram warns that FY27 earnings growth could moderate to 10-12% due to the sustained impact of the West Asia conflict. This represents a significant downward revision from the mid-teens growth expectations that were held prior to the West Asia conflict. The revision comes as the conflict enters its third month, with first-order impacts already being felt across sectors including oil marketing companies and tile makers. However, JP Morgan notes that Brent crude averaging around USD 100 per barrel would still be compatible with further earnings upside, unless geopolitical tensions escalate significantly and trigger widespread downgrades. In Europe, headline earnings growth projections for 2026 may appear elevated at around 18 per cent, but the report clarified that this is largely due to base effects in the Consumer Discretionary segment, with a more realistic median estimate of around 8 per cent leaving room for potential upside surprises, especially if economic activity remains stable.
As reported by The Economic Times, Sriram outlined several strategic changes implemented during the conflict period. The firm cut back on oil marketing and moved towards upstream oil as part of a re-assessment of the new-normal for crude oil prices. Energy markets proved fungible, with disruption in oil leading to renewed interest in electricity and power generation. Additionally, market gyrations and steep falls made some exposure look more appealing, leading to increased positions in areas with strong earnings resilience. JP Morgan expects Semiconductors, mining and industrials to deliver robust results, while consumer discretionary may remain under pressure in the near term, though better numbers could emerge in the second half. The report also highlighted that Energy is expected to outperform current projections, while banks could show resilience and recover part of their recent underperformance. At the sector level, performance is expected to remain uneven, with Semiconductors, mining and industrials likely to deliver positive results, while consumer discretionary may face continued pressure in the near term, though better numbers could emerge in the second half.
According to The Economic Times, Q4 earnings saw minimal impact as the conflict dynamics were only seen for one month, with inventory levels cushioning the blow materially. However, the impact of higher crude and weaker currency is likely to be felt in Q1. Sriram noted that earnings growth for FY27 may now be more likely in the 10-12 range versus the mid-teens expectations held prior to the West Asia conflict. JP Morgan highlights that the ongoing Q1 earnings season is likely to reassure investors with strong activity trends expected to translate into better-than-anticipated results in many markets, though companies may adopt cautious guidance due to persistent geopolitical risks. The report also pointed to evolving sector rotation trends since the pandemic, with cyclicals likely to lead the next phase and consumer cyclicals could emerge as the final leg of this rotation, particularly if geopolitical tensions ease and policy support for consumption increases ahead of key political events in the US. As noted by JP Morgan, strong activity trends during the quarter are expected to translate into better-than-anticipated results in many markets, though investors may look beyond near-term uncertainty.
As reported by The Economic Times, after the crash in March, the market recovered sharply in April despite crude oil remaining around $90-100 mark and rupee around 94-95 against the dollar. Sriram attributed this relief rally to hopes that the US and Iran were willing to negotiate, potentially leading to normalcy within 1-2 quarters. JP Morgan notes that recent market corrections have created opportunities as markets had entered oversold territory following the sell-off in March, and that investors who turned bearish may need to rebuild positions, lending further momentum to a rebound. Large-cap valuations are looking the most appealing given their exposure to FII selling and historically lower volatility characteristics. The report underscored that markets had entered oversold territory following the sell-off in March, creating attractive entry points for investors. The ongoing Q1 earnings season is likely to reassure investors with strong activity trends expected to translate into better-than-anticipated results in many markets, though companies may adopt cautious guidance due to persistent geopolitical risks.
