Geopolitical events rarely cause lasting damage to growth: Radhakrishnan

Near-term earnings may face pressure from geopolitical tensions, but improved valuations and strong fundamentals keep India's long-term market outlook intact

Equity market valuations have eased considerably in recent months but investors should remain watchful of earnings growth, says Anand Radhakrishnan, managing director at Sundaram AMC. In an email interaction with Abhishek Kumar, Radhakrishnan says companies with crude oil exposure and limited pricing power remain at risk, especially if the US-Iran conflict extends. Edited excerpts:

 

Apart from the geopolitical overhang, what will be the key drivers for markets ahead?

 

Crude oil prices are one of the major factors currently. Historically, India handles crude best when it is within the $60–90 range. Sustained levels above this band tend to pressure corporate margins and household budgets. Beyond crude, three domestic themes matter — data centres, localisation of components, and investments in hard assets. These factors reinforce each other by bringing in capital, generating jobs, and creating demand. Global capability centres (GCCs) have been steady contributors over the last five years, and we continue to track them.

  Finally, policy and energy transition play a role. The RBI has been proactive in keeping liquidity supportive for credit flow. On the energy front, current events often prompt a faster shift toward renewables and electrification across Asia. India is positioned to be both a participant and a beneficiary of that shift.

 

Which sectors did Sundaram MF add the most during the recent correction? How do you see banking and IT?

 

Our major additions are in select cyclicals — financials (including non-lending names), utilities (power), and capital goods. These were bottom-up decisions where we found specific opportunities at reasonable entry points.

  On banks, our view is constructive over the medium term. Asset quality appears stable, growth is visible, and regulatory liquidity remains supportive. If the investment cycle progresses, banks naturally participate by funding it and benefiting from the resulting deposit growth. 

On IT, we maintain a neutral stance. While valuations look attractive, it can’t alone be a reason to buy. Within the sector, we favour platform-based and ad-tech companies, as they seem better equipped to adapt to the changing technology landscape.

 

Do you expect foreign institutional investor (FII) flows to return now, considering that the geopolitical tensions have eased?

 

Global FII flows have been skewed towards artificial intelligence (AI) and semiconductors, and India has not seen meaningful allocation in that mix. Two paths could change it. 

The first is a domestic trigger. A sustained hard asset investment cycle is the strongest candidate, where India pulls capital on its own merit. The second is a global rotation — either US AI capex slowing or the cycle simply maturing — where allocators move out of concentrated bets and look for the next destination. India can be well-placed in that scenario, particularly if crude cools at the same time. 

The post-Ukraine episode is a useful reference here. As crude cooled from above $100 in August 2022, foreign investors directed significant capital back into Indian equities over the following year.

 

How do you assess market valuation after the recent volatility?

 

Valuations have meaningfully reset. The Nifty is now trading below both its five-year and 10-year median — a zone that has historically been a comfortable hunting ground for long-term institutional money.

Equally important, the premium India has historically carried over other emerging markets has now normalised toward its long-term average.

Where we remain watchful is on earnings. The market is currently pricing a base case of de-escalation, so the risk lies with companies that have meaningful crude exposure and limited pricing power.

 

What would you advise investors to do — staggered investment or wait for clarity on the conflict?

 

Our consistent approach is to rely on discipline rather than trying to time the market. Looking back at historical episodes, investors who maintained their plans through difficult periods generally fared better than those who waited for absolute clarity. In markets, clarity almost always arrives after prices have already moved. Geopolitical events disrupt commodity markets in the short term, but they rarely cause lasting damage to long-term global growth. 

If anything, this episode is likely to push policy further towards renewables, alternative energy, and electrification — opening a different set of investment opportunities. Capturing those, through active management, is what matters most from here.

 

Sell-side analysts have lowered FY27 earnings forecasts. Is that a concern?

 

The cuts reflect the impact of higher crude prices, both as a direct input cost and through the crude-derivatives chain.

In our experience, the impact of elevated crude prices on earnings shows up with a lag. It takes a quarter or two for input costs, pricing adjustments, and volume changes to fully reflect in the numbers.

 

Therefore, a single round of revisions is less indicative than the broader trajectory we might see over the next couple of quarters. 

Index composition also matters. A significant share of aggregate earnings comes from the banking sector, where the outlook remains stable. We continue to expect double-digit earnings growth at the index level for the current financial year.

 

If high oil prices sustain, which sectors will be most impacted?

 

Oil marketing companies generally face the initial impact, as they absorb costs without immediately passing them on. Following them, selective manufacturing and construction materials face pressure on input costs.

 

Consumer discretionary companies with limited pricing power also feel the squeeze, as they cannot raise prices fast enough to protect their margins. 

There is also a second-order effect. When fuel and food prices rise, household budgets tighten, which can slow down volume growth for consumer-facing businesses. Conversely, a weaker rupee—which often accompanies sustained oil shocks—can support pharma and select export-oriented businesses. Upstream energy producers also tend to benefit. The impact is uneven across the market, not uniform, and that is where active management earns its keep.