India faces 'bad or ugly' macro outcomes from West Asia crisis, says Sanjeev Prasad; but Nifty earnings may hold up

India's equity markets are caught in a cycle of reacting to daily news from West Asia with no clear direction in sight — and the macroeconomic consequences of the ongoing conflict are being underestimated, according to Sanjeev Prasad, Co-Head, at Kotak Institutional Equities.

In a conversation with ET Now, Prasad laid out a stark assessment: from India's perspective, there are only two scenarios on the table right now — bad and ugly.

The 'bad' scenario: Conflict resolves, but pain lingers

Even if the West Asia crisis ends relatively soon and the Strait of Hormuz reopens, India is not walking away unscathed. Prasad estimates that at an oil price of around $85 per barrel for FY27 — already elevated compared to pre-war levels — India would face a current account deficit of around 2% of GDP, a negative balance of payments of roughly $50 billion, and continued pressure on the rupee. Inflation could settle in the 4.5–5% range and fiscal deficit, while manageable, carries upside risk.

The 'ugly' scenario: All bets are off

If the conflict drags on and crude averages $100 per barrel for the year, the situation worsens sharply. The current account deficit could widen to 2.5%, the fiscal deficit could blow past 4.5%, and inflation may rise to 5.5% or above — depending on whether the government chooses to absorb fuel costs on its balance sheet or pass them on to consumers. Neither option is comfortable. "All bets are off," Prasad said plainly.

Nifty 50 earnings: More resilient than you might think

Despite the bleak macro picture, Prasad made an important point about why Nifty 50 earnings may not crack as dramatically as feared — at least in the near term. Around 50% of Nifty 50 profits come from sectors that are relatively insulated from the domestic economy. Oil and gas companies alone account for about 20% of index profits. Add IT at 12–13%, telecom at 4%, regulated utilities at 4%, and metals and pharma at around 5–6%, and you have roughly half the index earnings sitting outside the direct impact zone of a domestic slowdown.

Banks and NBFCs make up another one-third. A short-lived disruption of one quarter likely leaves credit costs and loan growth intact. But a prolonged conflict changes that calculus considerably.

It is the remaining economically sensitive slice — companies that directly consume oil, gas, or their derivatives — where margin and volume pressure becomes non-linear the longer the conflict continues.

FY27 earnings growth pencilled at 18% — for now

Kotak is currently maintaining its base case of around 18% Nifty 50 earnings growth for FY27, anchored on the assumption that the active conflict winds down by late April or mid-May and oil prices begin normalising. The June quarter may still disappoint, but the second half could recover. IT results have been a weak spot this season; the rest of corporate earnings have been decent so far.

However, Prasad was clear: if the conflict prolongs, the domestic half of the earnings basket will need to be revised downward — and that review will come sooner rather than later.