The West Asia conflict has put energy risk back at the centre of market thinking. Rising crude, questions around availability, and supply-chain disruptions, from fertilisers to sulphur, quickly travel into interest rates, the currency and the investor sentiment. For companies, the impact is immediate: Higher costs, possible shortages and pressure on margins.
In phases like this, everyone wants a clean, top-down answer. But with too many moving parts, broad calls can end up being more comforting than useful. A bottom-up lens works better: Back businesses that can take a hit and keep operating, and don’t abandon valuation discipline. When visibility is limited, resilience and the price paid are the real margin of safety.
The backdrop also carries a contradiction. Near-term operating conditions are strained because energy-linked inputs have become expensive and uncertain. Yet longer-term conviction in India’s growth story still holds, helped by steady retail participation. SIP flows have remained persistent even through volatile spells, and mutual fund distributors have helped investors stay the course. This domestic base doesn’t remove headwinds, but it does make the market less fragile.
When shocks overlap, broad themes become blunt instruments. The practical response is stock-by-stock: Look for businesses structurally less exposed to the current geopolitical stress, or those that have already demonstrated an ability to absorb disruption and buy them only when valuations leave room for error.
Navigating IT and Materials
Opportunity is selective. In banking and financial services, the focus is on institutions with a strong deposit franchise and sound credit culture. In materials, cement still offers select openings even as the segment grapples with constraints such as shortages of PP bags used in packaging. In healthcare, hospitals stand out, supported by rising incomes and ongoing consolidation.
Technology services also need discrimination. Indian IT is not insulated from AI-driven disruptions, and this transition will not be even. A winners-versus-losers framework is unavoidable: Preference belongs with firms using AI to deliver outcomes that are cheaper, better and faster; those capable of meaningful enterprise AI impact; and those building applications on large language models offered by other service providers. The separation is already visible in operating performance.
Policy and Monsoon
On policy, expectations should stay realistic. The RBI’s room to cut rates meaningfully is constrained because the same energy and geopolitical backdrop that weaken growth can also keep inflation risks alive. Still, support can come through liquidity management so that credit demand is met, better transmission through nudges (including potential changes such as risk weightages), and revived credit guarantee mechanisms, similar to the COVID era approach, for SMEs facing a geopolitical shock. The policy pause also carried a signal – the “Mai Hoon Na” moment.
Even the monsoon debate needs nuance. El Niño’s impact may matter more for August–September than June–July, while July remains critical for farm output. And it isn’t only the total rainfall that matters, it is the distribution. A positive Indian Ocean Dipole could also moderate El Niño’s severity.
Finally, friction in process is a cost in itself. A “Digi Yatra” equivalent for investors – seamless pathways for foreign direct investors, entrepreneurs, foreign portfolio investors and domestic investors would help; intent is visible in steps like the Jan Vishwas Bill, but execution often falters locally.
For investors, the takeaway is simple: This is a bottom up market where resilience and valuations matter. Maintain the dharma of asset allocation, buy corrections in a calibrated manner, recognise that large- and mid-caps appear near historical valuation ranges, and keep return expectations moderate.
(The writer is managing director, Kotak Mahindra AMC)
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.