Iran war correction a buying opportunity in Indian stocks: PhillipCapital

PhillipCapital says volatility from the Iran war could offer investors a chance to accumulate quality Indian stocks, while maintaining its Nifty target of 26,500-27,500 by March 2027

PhillipCapital bullish on Indian stock market depsite Iran war

Heightened volatility in global markets following the war in West Asia, involving Iran, Israel, and the United States (US), could offer Indian investors an opportunity to build long-term positions in equities, according to brokerage PhillipCapital. The brokerage has maintained its "constructive" view on the economy and domestic equities, buoyed by trade deals, lower taxes and interest rates, higher earnings, supportive government policies, new set of reforms, and an improved global standing. 

In its latest macro and strategy report, PhillipCapital said geopolitical tensions have weighed on Indian equities in the near-term, but the correction can be used to accumulate quality stocks. 

 

"The US-Israel and Iran war is a short-term overhang on Indian equities due to risks from higher oil prices and energy supply disruptions. However, we believe the equity correction is an opportunity to buy, assuming normalisation will resume in the Middle East even if the conflict continues for a longer period," the brokerage said. 

PhillipCapital has maintained its target for the benchmark Nifty index for March 2027, at 26,500-27,500, under its base case scenario. 

Nifty March 2027 target | Source: PhillipCapital

  The brokerage’s projections assume that Nifty earnings will grow 17 per cent in FY27 and 14 per cent in FY28, supported by improving corporate profitability and steady economic growth.

Strong domestic fundamentals

The brokerage’s positive stance on the Indian stock market is based by a strong macroeconomic backdrop. It expects India’s gross domestic product (GDP) to grow around 7.2-7.7 per cent in FY27, with inflation seen in the range of 3.7-4.2 per cent. 

PhillipCapital, further, foresees a growth broad-based growth with all four key drivers of the economy - private consumption, investments, government spending and net exports - contributing to its expansion. 

It also expects the current account deficit to remain contained below 1 per cent of GDP in FY27-28, while foreign capital inflows could support the rupee and financial markets. 

"These factors, combined with an ongoing shift of household savings towards equities, should continue to support the market over the medium term," the brokerage said.  READ | South Korea's Kospi bounces back after historic drop; CLSA turns cautious

Earnings recovery key driver

Apart from economic growth, analysts at PhillipCapital expect India Inc’s earnings growth to also support bullish outlook for markets. 

It expects Nifty companies to deliver revenue growth of 13 per cent in FY27 and 10 per cent in FY28, with profit growth projected at 17 per cent and 14 per cent, respectively. 

Within its coverage universe, it expects earnings to grow by 12-13 per cent over FY26-28. 

"Capital goods should remain the best-performing sector, followed by defence, cement, automobiles, and NBFCs. Two sectors where earnings growth is likely to improve meaningfully in FY27-28 are banks and FMCG. Other sectors where growth is buoyant – EMS and chemicals," it said. 

IT sector earnings, PhillipCapital added, could be downgraded, while Pharma earnings will remain weak in FY27.

Investment strategy: focus on large-caps, quality mid-caps

In this backdrop, analysts at PhillipCapital suggests that investors adopt a disciplined and selective approach as "portfolio churning and buying on dips" could generate solid returns in a moderate market environment. 

"We retain our constructive stance on equities; returns could be tepid in the near term, but more attractive in the long run," the brokerage said, adding that such strategies can help investors generate alpha over time. 

Furthermore, the brokerage favours large-cap stocks and quality mid-caps in the current market environment, while recommending a stock-specific approach in the small-cap segment due to valuation concerns. 

"Earnings of the last three quarters favoured mid-caps with high double-digit growth (partly due to favourable base), and earnings growth expectations are fairly decent. As a result, valuations now appear relatively reasonable at 27x one-year-forward P/E (at five-year average levels). The Nifty small cap index, however, is currently 13 per cent below its peak touched in December 2024 – still on a declining trend. It is trading at a one-year forward P/E of 23x, which appears frothy with relative to its five-year average of 20x," it said. 

The brokerage remains positive on capital goods, defence, metals, automobiles, cement and non-bank financial companies. It has also turned constructive on banks and fast-moving consumer goods companies as earnings growth improves in these segments. 

Among stocks, the brokerage picked L&T, Schneider, HAL, BEL, JK Cement, Ultratech, Amber, MTAR, Coforge, Hindalco, Tata Steel, Axis Bank, Titan, Ashok Leyland, and Lumax Auto as its preferred picks.

Nifty valuation outlook

Despite the recent volatility, PhillipCapital believes current valuations remain reasonable from a medium-term perspective. The Nifty is currently trading at about 19.2 times one-year forward earnings and 16.6 times two-year forward earnings which, the brokerage believes, is attractive when compared against FY28 earnings potential. 

A recovery in foreign institutional investor inflows could provide an additional boost to the market, particularly after recent outflows linked to global uncertainties.

Risks remain

That said, PhillipCapital cautioned that several risks could derail the outlook. A prolonged geopolitical conflict in West Asia could push oil prices higher, raising inflation and hurting growth prospects. 

Besides, commodity price shocks, weaker-than-expected earnings growth, or a delay in the return of foreign capital flows may also dent equity outlook.