Mumbai — Escalating geopolitical friction between Iran and Israel has unsettled investor sentiment worldwide, casting a shadow over Indian equities. Following a robust 10% rise in the Nifty since April 9, 2025, markets are now expected to enter a consolidation phase, according to a report from Emkay Global.
The firm notes that the conflict has introduced renewed uncertainty, with surging crude oil prices posing short-term risks to India’s fiscal health. Potential strains include a widening current account deficit, higher inflation, and pressure on the fiscal balance.
Although Emkay anticipates these effects to be short-lived, it cautions that persistently high oil prices could dampen foreign investment and squeeze sectors such as oil marketing, automotive, and consumer staples. Additionally, rising input costs could hurt chemical producers and makers of active pharmaceutical ingredients (APIs).
While short-term challenges persist, Emkay maintains a positive view on India’s growth prospects over the medium term. Key drivers include the prospect of interest rate cuts by the Reserve Bank of India (RBI), easing global commodity prices, and sustained inflows from mutual funds. Nevertheless, it sees the market taking a pause, given valuation concerns. As of now, 38% of BSE200 constituents trade above their five-year average valuations, compared to just 12% in April.
The brokerage continues to favor Discretionary, Technology, and Materials sectors while maintaining a cautious view on Financials and Staples. It also expects small and midcap stocks to outperform, supported by stronger earnings momentum and healthier balance sheets.
