Markets Shift Focus to US-Iran Tensions as Political Landscape Stabilizes, Asserts Kotak

The recent electoral outcomes in India, where the BJP claimed victory in West Bengal, the Left lost in Kerala, and the TVK secured an overwhelming win in Tamil Nadu, are indicative of shifting political landscapes at the state level. However, Kotak Institutional Equities suggests that the Indian stock market is likely to overlook these results in favor of broader global geopolitical risks and corporate earnings performance. The brokerage anticipates minimal disruption to the central government’s administrative and legislative agenda, allowing for a continued focus on macroeconomic management amidst the current election-free corridor that India is entering.

According to the latest strategy report from Kotak Institutional Equities, investor sentiment has shifted from state elections to global geopolitical dynamics, particularly the ongoing conflict in West Asia. The brokerage notes the fragility of the macroeconomic outlook tied to stalled negotiations between Iran and the U.S., stressing that while a short conflict scenario is currently projected, the risk of an extended conflict with heightened crude oil prices remains significant. Additionally, concerns over a potentially weak monsoon season further pose risks to India’s growth and inflation trajectory, underscoring the need for vigilant economic management.

Despite these challenges, the earnings season for Q4 FY26 has shown resilience, with results largely meeting expectations and prompting only minor adjustments to future forecasts. Kotak’s report highlights that, in the face of a protracted geopolitical conflict, corporate earnings may outperform broader economic growth—particularly given the current composition of the market. While overall valuations in the Indian market remain within a fair range, select consumption and investment stocks are becoming overvalued, whereas sectors like outsourcing and financials offer more attractive pricing. Furthermore, the enthusiasm from retail investors has driven a sharp rerating in ‘narrative’ stocks, further diversifying the investment landscape in India.

Source: The Economic Times

(Expert Note: This report was prepared by the Wealthova team.)