Strait of Hormuz could decide India’s growth story, Kotak shares market view

Kotak said stronger profit growth from financials, global commodities, global services, global products and utilities should support earnings despite mounting concerns over crude oil prices. The brokerage warned that higher energy prices could pressure growth, inflation, the fiscal deficit and the current account deficit. 

However, Kotak said the eventual economic outcome will largely depend on the duration of the conflict. It will also depend on the availability of oil and natural gas supplies through the Strait of Hormuz.

Kotak says earnings growth remains the biggest support for the market

Despite rising macroeconomic risks, Kotak said earnings expectations remain relatively healthy.

The brokerage expects Nifty 50 net profit growth of 18% in FY27 and 14% in FY28. It expects recovery is supported by the composition of listed-market earnings. Global commodities, global services, global products, and utilities account for a large share of profits. The brokerage also pointed to a favourable base effect in financials after a relatively weak FY26.

Kotak said, “We expect FY27 and FY28 net profits of the Nifty-50 Index to grow 18% and 14% after a muted 8% in FY26.”

The brokerage said stronger earnings from these sectors could help offset pressures emerging from higher energy costs and slowing domestic demand. However, Kotak added that risks remain if disruptions to oil and gas supplies continue for an extended period.

India’s economic outlook now hinges on developments in West Asia

Kotak said the conflict has significantly altered the macroeconomic outlook.

India’s growth trajectory, inflation outlook, fiscal position, and external balances remain closely linked to crude oil and natural gas prices. The developments in the Strait of Hormuz will remain critical. India’s dependence on energy imports routed through the region makes the waterway particularly important.

“India’s macro-economic outlook has deteriorated given higher global oil and gas prices since the start of the West Asia war and 1HFY27/FY27 macro-economic situation will depend on the extent and duration of the ongoing conflict,” said the domestic broker.

The brokerage said its base-case scenario assumes the conflict eases over the coming weeks and energy supplies gradually normalise. Kotak added that a prolonged disruption could result in significantly greater economic pressure.

Oil remains the biggest risk factor

A sharp rise in crude oil prices remains one of the most important risks identified by the brokerage.

Around 42% of India’s crude oil imports during FY26 passed through the Strait of Hormuz. Around 55% of liquefied natural gas imports came through the region. Nearly 88% of liquefied petroleum gas imports also originated from the Middle East. According to the brokerage, any prolonged disruption could have meaningful consequences for the economy.

“High oil prices are negative for India’s CAD/BoP, fiscal deficit, growth and inflation and the impact of crude oil prices is non-linear,” said Kotak.

The brokerage estimates India’s current account deficit at 2.5% of gross domestic product in FY27 under its base-case scenario. This estimate assumes an average crude oil price of $95 per barrel. In a more adverse environment, the current account deficit could widen to 3% of gross domestic product.

Kotak warns inflation could become a bigger challenge in FY27

Inflation risks have increased despite the benign trend seen in FY26. Kotak expects average consumer price inflation to rise to 5% in FY27 from 2.5% in FY26. 

The brokerage said higher crude oil prices are one source of risk. Elevated raw material costs, food inflation, and weather-related challenges could also contribute to higher inflation during the year.

Kotak said, “Inflation may surprise negatively.”

The brokerage noted that companies have already begun raising prices to offset higher costs. Kotak added that any increase in retail fuel prices would have a direct impact on inflation. Higher transportation costs could spread inflationary pressures across the economy.

The brokerage also pointed to the India Meteorological Department’s forecast of below-normal monsoon conditions in 2026, which could create additional pressure on food prices.

Valuations remain uneven across sectors

Kotak said market valuations continue to vary significantly despite recent volatility.

The brokerage said consumption stocks remain expensive. Financials trade at attractive-to-fair valuations. Investment-linked sectors continue to command rich valuations. Information technology services and pharmaceutical companies trade at fair-to-expensive levels.

Kotak said, “The Indian market’s valuation is a mixed bag after the helter-skelter price movements in the past few weeks.”

The brokerage also said pockets of excess valuation remain visible within sections of the mid-cap and small-cap universe. Investor enthusiasm remains elevated in several thematic segments. The brokerage also noted strong enthusiasm among certain public-sector companies.

Strong fourth-quarter earnings may give way to more volatile quarter

Kotak said recent earnings performance was stronger than expected, but the next quarter could be more challenging.

According to the brokerage, Nifty-50 net profit increased 6.6% in Q4FY26. That exceeded its estimate of 2.2% growth. EBITDA also increased 6.6%. Across the Kotak Institutional Equities coverage universe, net profit increased 14%. EBITDA rose 12%. Both metrics came in ahead of the brokerage’s expectations.

Kotak said, “4QFY26 results were decent but 1QFY27 could be bumpy.”

The brokerage said higher energy prices could create headwinds during the quarter ahead. Inflationary pressures and uncertainty surrounding developments in West Asia could also weigh on performance.

Conclusion

Kotak’s latest strategy note presents a market outlook shaped by two competing forces. On one side, the brokerage expects Nifty-50 earnings to grow 18% in FY27 and 14% in FY28.

Financials, global-facing sectors, and utilities should support that growth. On the other side, the brokerage warned that higher crude oil prices resulting from the West Asia conflict could weigh on growth, inflation, fiscal balances and the current account deficit.

For now, Kotak continues to see earnings as the key support for the market. At the same time, the brokerage said the trajectory of the economy and market sentiment will depend heavily on how the conflict evolves. The availability of energy supplies through the Strait of Hormuz will remain a crucial factor in the months ahead.

Disclaimer: The market strategy, corporate earnings projections, inflation forecasts, and current account deficit (CAD) estimates discussed in this report are based on institutional research analysis from Kotak Institutional Equities and do not constitute direct buy, sell, hold recommendations, or specific financial planning advice for retail investors.

Equity markets and index projections are deeply sensitive to fluid geopolitical conflicts, volatile global crude oil and natural gas prices, monetary policy tightening by central banks, and domestic monsoon variations. These factors can cause corporate profit margins and economic outcomes to vary drastically from projected baselines. Readers are strongly advised to consult a SEBI-registered investment advisor or a qualified financial professional before executing any fresh capital allocations or altering their asset management strategies based on these macroeconomic forecasts.

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