Daily Voice: Naveen Kulkarni sees growth challenges to Indian economy if Iran war gets prolonged

According to Naveen Kulkarni, the Chief Investment Officer at Axis Securities PMS, Q4 earnings could potentially be good because of the possibility of inventory gains across the system. However, if the war gets prolonged then there will growth challenges to the Indian economy in the future, he said in an interview to Moneycontrol. He believes once the Middle East tensions ease, a strong rally in equity markets is a highly likely scenario. "The current challenges to the Indian market are not just related to higher crude prices but also to the availability of gas, certain raw materials, and challenges to shipping routes. These concerns will be addressed immediately once tensions in the Middle East ease," he said. Do you see signs of stability in the equity markets, even though US–Iran developments are keeping volatility elevated? There have been instances of bottom fishing in the equity markets, overall stability is lacking. The volatility index serves as a crucial indicator of market stability, and a higher volatility in equity markets clearly indicates instability at the present juncture. The war in Middle East has been very tricky as it continues to escalate. While there is a disproportionate difference in the arsenal between the two warring parties, the objectives of the war are unclear or too lofty for a quick resolution. Thus, in a scenario where the global order has clearly destabilized, expecting stability in equity markets is not reasonable. Does the equity market believe that crude oil prices are unlikely to fall below US$60 per barrel anytime soon? It seems unlikely that crude oil prices will fall below US$60 anytime soon due to ongoing uncertainty in the market. Freight costs have gone up significantly, and the cost of insurance has also increased many times. This suggests that the instability in the Middle East will persist, leading to potential supply-side issues. Therefore, the chances of crude oil prices dropping below US$60 in the near future are quite remote. Once Middle East tensions ease, do you expect a strong rally in the markets driven by hopes of robust domestic fundamentals? Yes, once the Middle East tensions ease, a strong rally in equity markets is a highly likely scenario. The current challenges to the Indian market are not just related to higher crude prices but also to the availability of gas, certain raw materials, and challenges to shipping routes. These concerns will be addressed immediately once tensions in the Middle East ease. Apart from these challenges, which have arisen because of the war, FY27 was projected to be a good year for equity markets. Thus, once tensions ease, the Indian equity markets will post a very strong rally. Do you think the broader impact on Q4 earnings will remain manageable if the escalation does not prolong significantly? What are your expectations from the Q4 numbers? Q4 earnings could potentially be good because of the possibility of inventory gains across the system. However, if the war gets prolonged then there will growth challenges to the Indian economy in the future. Nonetheless, the near term earnings are likely to be good and could surprise positively. How do you interpret the relaxation of Press Note 3? The relaxation of Press note 3 is a long term positive and it will help in bringing more investments to India. Indian government recently has been focussed in attracting foreign capital through various routes. This is an additional step which will help in this endeavour. Do you think the liberalisation of Press Note 3 will strengthen India’s role in global supply chains? It will strengthen as investments in manufacturing sectors are likely to rise. However, this is a very long term structural theme that will take quite some time to play out. Do you expect an upward revision in the IT sector’s guidance for FY27 compared to FY26 next month? Indian IT sector is unlikely to see an upward revision in earnings guidance as the sector continues to see significant uncertainties on account changing industry structure led by AI. However, the sector valuations have become reasonable and dollar appreciation provides some near term cushion. Earnings guidance upgrade is quite unlikely at this juncture. Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.