The last five years in Indian equities can be seen in two distinct phases. In the first three-and-a-half years, Nifty 50 raced at a brisk pace of 18.7 per cent annual CAGR till September 2024. The Nifty 50 one-year forward PE gained 2 whole points to trade at 21 times in September 2024, compared to 19 times in April 2021. The phenomenal spell in the equity market may have lent an air of invincibility, which the investors have been reluctant to shed now. In the last one-and-a-half years, a few attempts to breach the peak have been undone. First, the US president election raised fears of protectionism starting from mid-2024. This manifested, but with sharper than expected, tariff announcements during the course of 2025. This was countered by multiple trade agreements including the EU, the UK and finally with the US in early 2026. Soon after, the US-Iran conflict emerged, driving Brent Crude up 60 per cent year to date (YTD) and equity values down.

As shown in the table, most of the sectoral indices have declined YTD, consequently. The Nifty 50 index is down 7 per cent YTD and the index one-year forward PE is down 11 per cent during the period. The highest impact has been on the NSE IT, NSE Real estate and NSE FMCG indices. But, on the other hand, NSE Metals, BSE Capital Goods and NSE Energy index have gained in the year. While 60 per cent of Nifty 500 stocks have declined YTD, optimism can be found in the remaining 40 per cent.

Fundamental investors are now faced with a crucial task of positioning himself/herself for the next five years. Opportunities might be emerging, but uncertainty and fear also abound. The way things are trending now appears like it is now time for the value investor to gradually take over the reins from the growth investor as value buckets are emerging again after phenomenal rally till September 2024 as shown in the table. On December 31, 2020, 52 per cent of Nifty 50 stocks were reasonably valued (one-year forward PE of less than 20 times). This shrunk to 38 per cent on September 2024 and further down to 33 per cent in January 2026, as investors got optimistic on an upcoming trade deal. The proportion of stocks that are reasonably valued has increased to 42 per cent now, closer to pre-Covid levels. The same phenomenon can be observed in Nifty 500 and Nifty SmallCap 250 index when measured with a cap of 30 times PE for reasonably-valued stocks.

However, it is important to note here that the word ‘reasonably valued’ is used in a relative context, given the higher valuations that markets have got accustomed to in the last five years. If one were to compare with valuations in the earlier decade, these many not be as reasonable as we deem it now. Given that structural shifts are playing out – inflation entrenched in global economies and their bond yields much higher than in the previous decade, geopolitical situation flaring up, trade wars ongoing etc, investors should assess the situation at this point before gearing up for bargain hunting. 

Dark clouds

Investors should establish a medium-term baseline assumption. This should incorporate the current macroeconomic conditions which are underlining the bearish sentiment. This is to insulate against further shocks and to build a resilient portfolio, beyond the current volatility. We emphasise inflation, limited fiscal and monetary space, and individual company limitations as the baseline assumptions.

The short-term spikes and volatility of crude oil notwithstanding, investors will have to incorporate higher crude prices for the medium term, which should imply higher inflation even if the conflict nears a resolution immediately. The RBI MPC meet also pointed to 4.6 per cent inflation in FY27 compared to 2.1 per cent in FY26. Crude prices, which were at $60 per barrel (Brent crude) on January 1, 2026, nearly doubled to a peak of $118 at the end of March, before settling at $90 per barrel now.

Even on conflict resolution in the near or distant future, a risk premium will be added by the buyers of crude oil themselves in view of the heightened volatility and the need to insulate against any aftershocks. Apart from this, the logistics, security and insurance of transportation — and not even considering the toll tax under geopolitical discussions — will restrict Brent crude returning to $60 per barrel any time soon. Various research houses are working with $75-80 per barrel on normalisation, which is 30 per cent higher than the base line.

This should imply high inflation in the economy which will gradually take hold. In the form of freight movement, supply chain scarcities, food inflation and expectation of inflation more than the inflation itself. This leads to higher prices, as customers and enterprises pull forward purchase in anticipation of higher costs later. If commodities (base and ferrous metals), also set up on an inflationary path (as has been the case post-Covid), the inflationary cycle will last longer even in an optimistic case.

Consequently, monetary and fiscal space will be limited. Against a possible rate cut expectation this year, the RBI may consider a rate hike. This could be in response to either domestic inflation or in response to concurrent rate hikes by other central banks and defend the rupee against the dollar. In the fiscal space, the government already announced GST rate cuts and income tax rationalisation last year and announced a cut in excise duties to combat oil prices. This should limit the spending power of the government, which may show up as cuts in infrastructure, housing, health or defence impacting the aggregate demand for Indian corporate.

Finally, company-specific limitations have to be analysed. At a strategic level, companies will pause or slow down any aggressive expansion plans. Corporate capex, which has been recovering, will likely be on hold again and this will have a trickle-down effect. Apart from Pharma, IT, Textiles and Gems, many other sectors were finding their stride in export markets. Including Autos, Capital goods, EMS and even FMCG. These sectors are more reliant on Latin American, West Asian and African markets, which are more susceptible to the macro instability than developed markets. The volatile outlook domestically and internationally will limit corporate India’s expansion plans, which will impact the valuations that are conditional to earnings growth driven by expansion plans.

There certainly can be an upside risk to the conservative assumptions, but a prudent investor should work with the baseline assumption to insulate their portfolio: Higher inflation, limited fiscal and monetary space, and tentative corporate outlook.

Searching for silver linings

To sort out the eventual silver lining, we start with sectors that are relatively insulated from the oil shock or the inflation, including Pharma, Hospitals and IT.

IT

IT sector’s direct impact could be limited to clients from West Asia, which is a smaller proportion of the revenues. But the sector has a bigger overhang to deal with. The larger issue of AI disruption is at an inflection point. Indian IT’s role at such juncture, where value delivery from the AI build-up will be emphasised, will be a litmus test for the industry. The sector participation and the revenue potential will be the key monitorable. IT bellweather TCS continued to report weak constant currency revenue growth in Q4FY26 and while it expects FY27 to be better, that is no solace given the over 2 per cent decline in currency growth in FY26.

Pharma and Healthcare

Pharma sector does rely on chemical precursors, but the margin impact should be limited. The sector is on the verge of launching or has launched in many cases (starting with Dr. Reddy’s) generic semaglutide for diabetes and weight loss. Pending regulatory clearance, the sector will eye Indian and several other markets including West Asian markets in the current fiscal year as pharmaceutical reach will not be impeded by the conflict. The sector constituents can be analysed on individual strength; earlier, we had recommended investors accumulate Caplin Point, and hold Zydus Lifesciences. Similarly, hospital stocks should not be affected by general inflation, which implies that the sector momentum can continue unabated. The sector will gain from pricing and volume. Pricing should be supported by increase in complicated case-load mix, robotic surgeries, efficiency and general inflation. Volume will be aided by increasing bed count by expansion. Apollo Hospitals, the bellweather, Narayana Hrudayalaya and Krishna Institute of Medical sciences, for instance, are on an expansionary path.

Sectors placed well

Despite impact, Banks, Automobiles and Power generation companies are placed well.

Banks

Net interest margin (NIM) compression has naturally eased by Q4FY26. Growth in deposits, which offer lower cost of funds, is offsetting lower yields on loans from the rate-cut cycle last year. If inflation takes hold, the expectation of a rate hike instead of rate cut will further support NIMs and possibly support further growth in deposits.

Asset quality has been strong with low NPA and credit costs reported last year. Any NPA eventuality playing out, if the conflict stretches, is at least backed by strong provisions built by banks in the last couple of years. Credit growth has also witnessed healthy participation from all sectors by Q3FY26, including corporate and SME sectors. A supply-chain pressure could impact companies starting with SME sector and is the primary headwind for the sector. Top-tier banks, like SBI and ICICI Bank, with healthy underwriting and diverse portfolio can be attractive at modest valuations. With HDFC Bank, the resignation of part-time chairman and independent director has not led to further bad news so far. The stock has made a severe time-wise correction in the last five years, with it delivering only 12 per cent absolute returns and valuation has corrected from 4.1 to around 2.2 times price to book ratio. Hence this too may offer opportunity for long-term investors.

Automobiles

Commodity cost inflation — that includes copper, aluminium, rare earths for EVs — was a concern prior to the conflict itself and can be further aggravated owing to logistics issues in shipping. Supply-chain resilience extending to auto ancillary companies will be tested in the short term, including semiconductor shortages, which may resurface.

But automobiles sales growth was robust even in March 2026. The post-GST sales momentum is expected to carry into FY27 as well. The operational leverage, strong demand, rising average selling prices and premiumisation can offset any decline in gross margins from commodity costs. Exports are important for Indian auto growth now. The demand-hit from oil disruption in Latam, West Asia and Africa along with currency fluctuation, which are the major markets, will be volatile. Maruti Suzuki and Hyundai India stock prices have declined 20 per cent YTD. The two companies with strong parentage should weather any supply-chain issues better than peers.

Power Generation

India’s installed power capacity at 520 GW in January 2026 is on its way to reach the projected capacity of around 900 GW by 2031. Of this, close to 500 GW is to be sourced from renewables. In the current context of fuel shortage overhang, the targets of installed power and renewable proportion will be further strengthened. This should benefit power generation (NTPC), power transmission (Power Grid) or even power financing companies (REC) for a multi-year growth outlook.

Sectors to be monitored

We recommend investors proceed with caution in the sectors of Capital Goods, Consumer Durables, FMCG, Metals, and Oil and Gas.

Capital Goods

The two segments of Capital Goods sector — industrial and power generation machinery — can diverge on expected growth. The sector has positively rerated last year on the tailwinds of revival in industrial capex, which is adding to the valuation risk.

Power demand is strong and expected to remain strong, including renewable additions. Hitachi Energy, GE Vernova and CG Power that supply machinery to the power sector can ride the wave. With valuations at a high, investors need to wait for better valuations.

The industrial segment of Capital Goods, also at high valuations, has benefitted from the modest revival in capex growth last year. As mentioned, the reinvigorated investment cycle may be under pause or consideration till clarity on global demand outlook emerges. This can impact Capital Goods, especially since they are trading with expectations of continued growth.

Consumer Durables

The Consumer Durables sector is facing weak sales momentum, as evidenced even in Q3FY26 results, which despite GST revision acts as a tailwind for the sector. Compared to last year’s late Summer, an early Summer in India this year should support room air conditioner (RAC) sales on a weak base of last year. LG Electronics has reported strong growth in most segments, including RACs in Q4FY26 sales.

But full-capacity manufacturing has been impacted on account of LPG shortages in March-April, and more clarity will emerge in Q4FY26 results earnings call in the next few weeks. Higher commodity costs will dent FY27 margin outlook and so will inflation. But with a strong Summer and weak base in FY26, the sector is expected to post good topline growth in low double-digits. Investors need to monitor whether it delivers on that.

FMCG

FMCG valuations continued to be rangebound in FY26 owing to lower secular growth that began from the last bout of inflation in FY22-23 period. Volume and price growth were stabilising in H2FY26 at low to mid single-digits. But the sector will be further aggravated by inflationary concerns in the current times, and the sector witnessed the sharpest drop in valuation YTD. Crude derivatives including packaging, logistics, dollar imports, and food price inflation are likely to impact margins or revenue growth again in FY27.

Metals

Domestic steel prices, after a four-year hiatus, have now reported increasing prices. The safeguard duty, restricting cheaper imports enacted last year, has trickled into prices. The primary raw materials, on the other hand, iron ore and, more importantly, coking coal are expected to rise. Prior to the conflict as well, the commodities were on the cusp of an inflationary path after the significant decline in input materials, primarily the coking coal price from $650 in 2021 to less than $200 in Q3FY26.

With commodity costs expected to rally post the conflict, these prices can escalate impacting steel companies. The companies are better placed to absorb the costs with higher steel prices and operating leverage from expanded capacities. Despite the tailwinds from improved pricing, the sector outlook may be restrictive owing to higher valuations and uncertain infra spending outlook.

Oil and Gas

The segment consists of oil marketing companies (OMCs) and refineries. The refineries, led by Reliance Industries, should benefit from improved gross refining margins in the short term, but this too faces challenges from the government imposing ₹55 tax on diesel exports, similar to a windfall tax. The OMC segment, on the other hand, will face significant losses from rising crude, as the retail prices have not changed. Any eventual change in prices may be staggered and small, leaving the companies in a loss. As mentioned in the base case, the risk premium will be added to crude prices impacting OMCs for a longer time. The ratio of refining to marketing is the most beneficial for Reliance Industries and unfavourable for HPCL, and should impact the other stocks based on a similar split of refining versus marketing. For a deeper understanding of the sector, check out our detailed Big Story ( published in out bl.portfolio edition dated March 15, 2026.

Takeaway

As explained above, given the uncertainties and baseline assumptions, investors should assess the situation at this point before gearing up for bargain hunting. The sectoral highlights above reflect a top-down approach. At the same time, as explained in the article in bl.portfolio edition dated April 12, 2026, The Sector Call Illusion, ultimately what matters is which stock the investor is buying and not the sector. A good bottom-up approach, by getting into the valuation and specific opportunities and risks of stocks, must be considered before buying stocks. The current conditions reflect a situation where investors can nibble strongly, but definitely not go all in.

Published on April 18, 2026