Harsha Upadhyaya, Chief Investment Officer for Equity at Kotak Mahindra Asset Management Company Ltd, has offered a measured outlook on the potential impact of the ongoing global energy shock on the Nifty's earnings growth for the financial year 2027. Speaking in an exclusive interview, Upadhyaya indicated that while market sentiment may suffer, fundamental damage to Nifty earnings is expected to be minimal.
Nifty Composition Offers Resilience
Upadhyaya highlighted that a significant portion of the Nifty 50 index, roughly 60-65%, comprises sectors such as financials, healthcare (hospitals), and telecommunications. These sectors, he noted, are not directly or substantially impacted by immediate energy price fluctuations, such as those potentially stemming from geopolitical events like the Iran war. This structural composition provides a degree of insulation for the overall index's earnings.
However, Upadhyaya cautioned that if the energy crisis were to prolong, second and third-order effects could emerge, potentially broadening the impact across more sectors. For now, nearly two-thirds of the Nifty basket remains fundamentally unaffected, although a quarter of the index, particularly oil marketing companies where fuel costs are a major input, may face margin pressure.
Short-Term Volatility, Long-Term View
While acknowledging that the June quarter of the current financial year might see some impact, Upadhyaya suggested that if the crisis resolves swiftly, investors might overlook these short-term results. He emphasized the current period as volatile, urging investors to re-evaluate valuations and growth prospects within their portfolios.
"When you are in the middle of a volatile period or a crisis, it's always difficult to manage. But those who can manage volatility and look for wealth creation over the medium to long term, they benefit from those volatile periods," Upadhyaya stated.
He also touched upon the broader economic landscape, noting that rising US bond yields, currently at near two-decade highs, signal the global ripple effects of the energy shock. Higher interest rates, he explained, are unwelcome globally and could force policymakers to act.
Inflationary Concerns for India
Domestically, Upadhyaya pointed out that increased retail fuel prices inevitably feed into inflation over time, due to the cascading impact on transportation costs for goods and services. A sustained period of high fuel prices could alter consumer spending patterns, potentially limiting discretionary expenditure. Globally, he warned, the energy shock could curtail economic growth if prices and availability issues persist.
Kotak AMC, managing substantial equity assets, maintains a stance that while sentiment will worsen, the structural makeup of the Nifty offers some protection against a severe hit to FY27 earnings, provided the crisis does not become protracted.