Anupam Tiwari, Head of Equities at Groww Mutual Fund, has identified sustained rise in crude oil prices as the biggest risk to corporate earnings for FY27 and FY28. According to his latest interview with Business Standard, a sustained increase in oil prices could have implications for inflation, fiscal position and corporate margins, creating broader earnings headwinds if elevated prices persist. The combination of weaker consumption, higher inflation, and potential moderation in government capex could create significant pressure on corporate earnings, with the ongoing West Asia conflict adding uncertainty around the pace of earnings recovery, particularly given India's dependence on imported energy. As Tiwari noted, any sustained up move in equities will need to be supported by a broad-based and sustained improvement in earnings.
Manish Sonthalia, Director and Chief Investment Officer at Emkay Investment Managers, has identified frequent regulatory changes as a significant concern for market participants. According to his interview with NDTV Profit, these changes and proposals across areas such as MDR, BIS notifications and insurance commission norms have emerged as an additional worry for investors. As Sonthalia explained, "The new worry is the frequent regulatory changes" - changes to the rules of the game can force investors to reset their valuation models, particularly because a significant portion of a company's valuation is derived from its terminal value and assumptions around continuity of business. While such reforms could be beneficial for consumers, industries and the market over the long term, they can create short-term disruptions that force investors to reset their valuation models.
Sonthalia emphasized the need for better market preparation before announcing major regulatory changes. As reported by NDTV Profit, he stated that reforms would be better received if businesses and investors were given adequate time to adjust, rather than being announced abruptly. He urged regulators and policymakers to "Prepare the market for it. Don't just announce it abruptly" and highlighted the insurance sector's consultation process as an example of how proposed changes can be discussed with stakeholders before final rules are implemented. This approach would provide greater predictability in the regulatory environment and help market participants better understand and prepare for upcoming changes.
The Indian stock market faces potential earnings downgrades if the ongoing Middle East conflict prolongs beyond October-November, with margin pressure likely to become visible in corporate results from the second quarter of FY27. According to Sonthalia's analysis, the market is currently building in around 14-15% Nifty 50 earnings growth for FY27, and a prolonged conflict could push up raw material and input costs, putting pressure on corporate margins and potentially leading to earnings cuts in the December quarter. As he noted, "Margin is a bigger issue currently with regard to the potential cut in numbers in the third quarter" - the key earnings risk for Indian equities is a potential downgrade in FY27 estimates if the US-Iran war in the Middle East continues for longer. Tiwari from Groww MF concurs, stating that higher energy costs can have a broad-based impact on the economy, with the combination of weaker consumption, higher inflation, and potential moderation in government capex creating broader earnings headwinds.
Despite current challenges, both experts remain cautiously optimistic about selective opportunities. Tiwari from Groww MF believes large-caps are still not as cheap as they are sometimes made out to be, with increasing competition from new entrants and relatively lower investments in research & development putting further pressure on valuations. However, he sees opportunities for active stock picking in mid- and small-cap segments, noting that these segments are highly diverse with different business models and growth prospects. Sonthalia remains constructive on parts of the primary market, noting that several recently launched and upcoming companies are being offered at reasonable valuations, with strong demand for IPOs making allotments difficult even for QIB investors. Both experts emphasize that SIP flows have increasingly become part of investors' regular financial planning, providing resilience during periods of subdued equity returns, though they caution that prolonged periods of weak returns could eventually affect investor sentiment.
