According to Sanjiv Prasad, Managing Director and Co-Head of Kotak Institutional Equities, India's macroeconomic situation could worsen or become even worse in the first half of FY2026-27 or the entire FY2026-27, depending on the intensity and duration of the West Asia crisis. In his latest strategy note, he said that the earnings outlook for FY2026-27 is currently good, although it could deteriorate if the conflict continues for a prolonged period. Valuations now appear good, bad, or very bad (extremely expensive) depending on sectors and stocks. Q4FY26 results were satisfactory, but Q1FY27 could be volatile.
Earnings outlook is good
The report estimates that net profits of the Nifty-50 index will grow by 18% in FY2026-27 and 14% in FY2027-28, after a sluggish growth of only 8% in FY2025-26. Sanjiv Prasad comments that the expectation of a strong earnings recovery in FY2026-27 may seem contrary to India's challenging macroeconomic environment. However, this strong growth reflects two things. First, the unique structure of net profits in the market, which includes a large share of profits from global commodities, global services and products, and utility companies. Second, the base for the financial sector in FY2025-26 was relatively low (low base). However, if the disruption in global oil and gas supply persists longer than expected and raw material prices rise more than estimated, the possibility of earnings cuts in domestic consumption sectors cannot be ruled out.
Macro outlook is bad, or very bad
According to the report, since the start of the West Asia war, India's macroeconomic outlook has weakened due to rising global oil and gas prices. The situation in the first half and the full year of FY2026-27 will depend on how long and how widespread the current conflict becomes, and its impact on oil and natural gas supply and prices from West Asia. Higher oil prices are negative for India's current account deficit (CAD), balance of payments (BoP), fiscal deficit, economic growth, and inflation. The impact of crude oil prices is not linear (i.e., not in the same proportion). The base case assumes that the West Asia war will end in the next few days or weeks, and the Strait of Hormuz will be gradually reopened thereafter.
Valuations: good in some places, bad in others, very bad in some
After sharp volatility in prices over the past few weeks, the valuation of the Indian market appears mixed. According to the report, broadly (1) consumption sector stocks are expensive, (2) financial sector valuations are attractive to fair, (3) investment-related stocks are extremely expensive, and (4) outsourcing sector i.e., IT services and pharma stocks have valuations ranging from fair to expensive, regardless of the company's size or capability. The report states that there appears to be froth in some segments of midcap and smallcap stocks, certain thematic stocks such as digitalization and electrification, and some public sector (PSU) stocks. Retail investor sentiment has remained strong even during the crisis, while high-net-worth individuals (HNIs) have shown excessive enthusiasm in some themes.
Q4 satisfactory, next quarter challenging
According to the report, in Q4 FY2025-26, the net income of the Nifty-50 index grew by 6.6%, against an estimate of 2.2% growth. During the same period, the net income of companies covered under the KIE coverage universe (Kotak Institutional Equities' review) grew by 14%, against an estimate of 7.3% growth. Nifty-50 EBITDA grew by 6.6%, against an estimate of 7.1% growth. Meanwhile, KIE universe EBITDA grew by 12%, higher than the estimate of 10.1% growth. The report says that Q4 results were satisfactory, but the next quarter may be somewhat volatile. (Share Manthan, June 2, 2026)
