Prolonged Iran conflict may hit corporate earnings in India: Report

Corporate earnings in India could face downside risks if the ongoing Iran conflict persists for more than a few weeks, as higher oil and gas prices threaten to weigh on the economy and markets, according to a report by Kotak Institutional Equities. 

"We expect some downside risk to corporate earnings, especially if the conflict lasts longer than a few weeks," the report said on Thursday. 

The escalation in the Middle East has already started affecting investor sentiment, particularly among foreign investors who remain sensitive to risks around energy supplies and macroeconomic stability, according to the report. 

"With the outbreak of the Iran conflict over the weekend, the foreign investor mood has turned cautious again as India is vulnerable to disruptions in oil & gas supplies with risk of a higher-than-anticipated current account deficit," it said. 

 

India, which imports a large portion of its crude oil needs, is particularly exposed to sharp increases in global energy prices, making an oil shock one of the biggest macroeconomic risks for the country in the current environment. 

Higher oil prices could raise input costs across sectors, increase inflationary pressures and push up the country's import bill, potentially weighing on corporate profitability. 

The brokerage also highlighted the risk of a widening current account deficit if energy prices remain elevated for a prolonged period, as disruptions to oil and gas supplies could increase India's external vulnerability. 

The brokerage firm in its report also said domestic factors such as steady local equity inflows and India's medium-term growth prospects could continue to support markets, although geopolitical developments remain a key monitorable in the near-term. 

"The key downside risks for the overall market are a longer-than-expected crisis in the Middle East with oil/gas supply disruptions and price hikes," the note added.