Nifty50 outlook: Will rising oil prices delay earnings recovery? 

With crude oil prices on a rise again, and an end to the US-Iran conflict looks a distant away, there is a growing concern that FY27 earnings growth estimates could be at risk. Analysts noted that the March quarter earnings season has been encouraging so far, barring the results from IT firms. For now, they do not see many major impact on Nifty50 earnings.  

On Wednesday, Brent oil futures for July delivery were trading 2.84 per cent higher at $107.33 a barrel. Q4 net income of Nifty50 universe has been largely in line with expectations, Kotak Institutional Equities said.  This brokerage said the continued stalemate in the Iran-US war with no meaningful progress on peace negotiations over the past few days, despite an extended ceasefire, raises the specter of continued disruption to global oil and gas supplies and higher prices versus the market’s expectations. 

"India’s earnings may paradoxically hold out better than the economy in a more adverse scenario," it said. Nifty50 companies such as HDFC Bank, Reliance Industries, TCS, Infosys, Trent, Nestle India, Shriram Finance and Jio Financial Services, among others, have announced their quarterly earnings so far.

Kotak said India’s macroeconomic outlook has dimmed significantly since the start of the US-Iran war. While it sticks with its base-case scenario of a short conflict of a few weeks, it said probability of a more adverse scenario of the conflict continuing for longer is rising, given limited momentum on the peace negotiations. 

Kotak said India’s earnings may hold out better than the economy in the event of a more prolonged conflict, given the earnings composition of the market. In the case of the Nifty-50 Index, half of the net profit comes from sectors  such as electric utilities, IT services, metals & mining, pharmaceuticals, oil, gas & consumable fuels and telecommunications, with low connection to domestic economic conditions. 

It said one-third of net profits comes from lenders where the impact of a short conflict will be marginal and the impact of a longer conflict (up to six months) manageable with a modest increase in credit costs. Also, one-sixth of net profits comes from domestic ‘consumption’ sectors that may be impacted negatively by weaker economic conditions.

In a recent note, Emkay Global said companies are expected to bear the full impact of the temporary oil shock in Q1FY27E earnings, given the constraints in energy availability and disruption in supply chains.

"The net effect on FY27E earnings is likely to be relatively small, with less than 2 per cent impact on the Nifty earnings, as 51 per cent of the Nifty50—including financials, technology, telecom, is largely immune to the oil shock. The impact on SMIDs is expected to be more severe, though even in this segment, we expect 3-4 per cent full-year impact at worst, with the pain being front-ended in 1HFY27," it said earlier this month.

PL Capital in a recent noted said near-term corporate performance continued to be robust, with Q4FY26 seeing continued demand across all segments. The segments that could contribute significantly to growth include automobiles, metals, telecom, NBFCs, healthcare, and construction. 

"Nevertheless, the pressure on margins is increasing, with input prices going up and most segments registering lower profits," it said.