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13 Apr 2026
Synopsis
Geopolitical tensions are impacting global markets. Vinod Karki, Equity Strategist at ICICI Securities, suggests the Nifty index offers a safe haven. The Nifty's composition, favoring energy producers over consumers, provides resilience. This crisis is seen as a short-term disruption. Largecap companies within the Nifty are better positioned than small and midcaps. Investors should focus on largecaps for better risk-reward.
As geopolitical tensions rattle global markets and crude oil prices stay elevated, most investors are asking the same question: where do you hide? Vinod Karki, Equity Strategist at ICICI Securities, says the answer may be simpler than people think, and it starts with understanding exactly what the Nifty actually holds.
The market has already priced in the base case
From the day the Middle East conflict began to the bottom of the market at end-March, the total market cap erosion was close to Rs 51 trillion, roughly 15% of GDP. Karki believes that correction largely reflects the base case scenario, which he defines as a three to four month disruption rather than a prolonged structural crisis.
"We have passed maybe a month or so into that kind of environment," he says, adding that both fundamental and valuation support appears to have emerged at those lows. The bigger risk, he acknowledges, is an escalation that goes well beyond the current scenario. But based on what has unfolded so far, including movement toward negotiating tables, his base case remains a contained, short-duration shock.
Why the Nifty is more resilient than most realise
Karki makes a point that most market commentary has missed. This crisis is fundamentally an energy shock, and the Nifty as a portfolio is actually tilted toward energy suppliers, not consumers.
In India's energy mix, roughly 55% comes from coal and electricity, with the remaining 45% from oil and gas. The key insight is that industry, the largest energy consumer, runs predominantly on coal and electricity. Companies like Coal India, NTPC, Power Grid and ONGC, which are either upstream energy producers or electricity suppliers, sit inside the Nifty and stand to benefit from higher energy prices.
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The companies that get hurt most in an oil shock, the oil marketing companies and other downstream players, have largely moved out of the Nifty index. So the benchmark is structurally better positioned for this specific type of crisis than many investors assume.
The inflation kicker nobody is talking about
One of Karki's more contrarian observations is that a dose of inflation may actually help India's nominal growth story right now. Before this crisis, inflation was running abnormally low, which was compressing nominal GDP figures to around 8%. India typically runs at 6.5% to 7% real growth with around 4% inflation.
The RBI has already revised its inflation forecast upward to 4.5% to 5% for the coming year. If the oil shock proves temporary and demand holds up, the resulting inflation could push nominal growth higher, improve corporate revenue numbers, and give banking credit an additional kicker. Credit growth is already running at around 14%, well ahead of nominal GDP, and working capital demand from corporates may push it higher still.
The critical variable to watch, Karki cautions, is whether oil prices reach a level that starts visibly damaging consumer demand. That threshold has not been crossed yet.
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Where the real pain is: Smallcaps and midcaps
The business losses from this shock are concentrated in what Karki calls the SMID space, small and midcap companies in textiles, building materials, chemicals and fertilisers. These sectors are more directly exposed to crude-linked input costs and are largely outside the Nifty.
Interestingly, the SMID space has not corrected as sharply as history would suggest. In a shock of this magnitude, with the Nifty falling 10% to 11%, smallcaps and midcaps would typically fall 15% to 20% at the index level. That has not happened, partly because domestic mutual fund flows from SIPs have remained robust and balance sheets in this space are relatively clean.
But Karki is not reading that resilience as a buying signal. He points out that SMID valuations are still not cheap enough to compensate for the higher risk. With largecaps offering better earnings visibility, more insulation from the energy shock, and comparable or better recent drawdowns, the risk-reward clearly favours the Nifty right now.
His bottom line: stick with largecaps, watch demand data closely, and treat any further escalation as a tail risk rather than a base case.
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