India’s equity markets are expected to present lucrative alpha opportunities in FY27, as per a recent report. Despite the ongoing West Asia conflict causing uncertainties in various aspects, including oil prices and currency movements, sectoral differences, robust macro buffers, and potential foreign flow recoveries are likely to support market performance. Motilal Oswal AMC’s MD and CEO, Prateek Agrawal, emphasized the potential for active investors to outperform due to volatility and sectoral dispersion.
The West Asia conflict has raised concerns about oil prices, inflation, and earnings estimates for FY27. However, India, despite being heavily reliant on energy imports, is in a relatively favorable position compared to other economies due to its diversified fuel sources, strong forex reserves, and lower oil dependency for power generation. With energy imports constituting about 2.8% of GDP, India’s reserves covering over seven months of imports and around 70 days of oil reserves are expected to provide a cushion in the short term.
Agrawal highlighted India’s capability to process a variety of crude sources, including from Russia, and its coal-based power system, which helps mitigate the impact of global energy shocks on industrial output. Looking forward to FY27, sectoral performance is expected to vary based on different scenarios. Domestically produced commodities like metals, chemicals, and food may benefit from higher prices if disruptions persist, while sectors such as electric vehicles and renewables could see continued policy and investor support.
In the event of a crisis resolution, growth-oriented segments like capital markets, non-banking financial companies, electronics manufacturing services, and fintech sectors may experience a revival. Agrawal also noted that banking stocks, currently trading at attractive valuations due to FPI outflows, could offer value opportunities in the future. The return of FPI flows is a possibility if oil prices stabilize and the rupee strengthens, further bolstering market performance in FY27.
Despite risks related to high oil prices and external balances, FY27 could be a rewarding year for investors focusing on earnings growth and stock selection if geopolitical tensions ease. Agrawal expressed optimism about the market’s potential to sustain its level and deliver favorable growth outcomes, contingent upon existing risks and uncertainties.
