Earnings recovery is broadening, crude spikes unlikely to derail markets: Anand Rathi | Stock Market News

The initial earnings data for Q1FY27 suggests corporate earnings are rebounding after a relatively subdued FY26, according to Anand Rathi, founder and chairman of the eponymous financial services group.

At the same time, geopolitical tensions have once again put crude oil prices under the spotlight. But historical trends suggest that while major conflicts often trigger sharp spikes in oil prices, those moves have typically proved temporary rather than structural, Rathi said in an interview with Mint.

During periods of heightened forex volatility or a weaker rupee, export-oriented sectors tend to benefit from higher revenue realisation in rupee terms. These include IT, pharmaceuticals, textiles and specialty chemicals, where a significant share of revenues comes from overseas markets.

However, the overall benefit could be limited by ongoing geopolitical uncertainties and supply chain disruptions.

On the other hand, companies that rely heavily on imported raw materials, such as oil marketing companies and airlines, could face higher input costs, partly offsetting the benefits of a weaker rupee. As a result, while exporters remain relatively better positioned, the extent of the advantage is likely to be constrained by broader global uncertainties.

The RBI recently announced concessional swap rates for FCNR(B) deposits until 30 September to attract more dollar inflows and strengthen foreign exchange reserves. As of 20 July, banks had mobilized nearly $20 billion under the scheme, indicating a healthy response from non-resident Indians.

That said, the direct impact on banks' profitability is likely to be limited. FCNR deposits still involve swap costs, while the funds are typically deployed at competitive lending rates, resulting in only a modest impact on net interest margins.

The bigger benefit lies on the liquidity side. Banks raising FCNR deposits can reduce their reliance on higher-cost domestic bulk deposits, marginally lowering their cost of funds.

The larger gains, however, are likely to be at the macroeconomic level. Higher foreign currency inflows support the rupee, improve macroeconomic stability, enhance liquidity and create a more favourable environment for credit growth. Over time, stronger credit demand, better asset quality and lower credit costs are likely to contribute more meaningfully to bank profitability than the FCNR scheme itself.

The initial Q1FY27 earnings indicate that corporate earnings are recovering after a relatively subdued FY26.

So far, nearly half of the companies in the Nifty 50 and Nifty 100 have reported results, with earnings per share (EPS) growing about 6.6% year-on-year.

Among the roughly 20% of companies in the Nifty Midcap 150 and Smallcap 250 indices that have reported results so far, earnings have grown 11.3% and 52.7%, respectively.

Sector-wise, banks and financial services have posted healthy earnings growth of 18-20%, supported by steady credit growth and stable asset quality. The automobile sector has also reported strong earnings, driven by resilient domestic demand and rising premiumization. Oil and gas companies, however, have seen weaker earnings because of commodity price volatility, pricing pressures and an unfavourable base.

Our historical analysis of crude oil prices during major geopolitical conflicts suggests that while prices often experience sharp short-term volatility, the impact has generally been temporary rather than structural.

During major global conflicts such as the Russia-Ukraine war, crude prices rose by around 35% from their lows before retreating over the following two to three months.

Similarly, during the recent US-Iran conflict, crude initially climbed sharply—from around $69 a barrel to nearly $115, but later eased back to the $70-80 range as tensions subsided.

Indian sectors such as automobiles, cement, chemicals, paints, aviation and consumer goods are particularly sensitive to crude oil prices. A moderation in crude prices helps ease input cost pressures, supports operating margins and improves earnings visibility.

India has been among the fastest-growing economies in recent years, recording GDP growth of 7-8%, and it continues to stand out among both emerging and developed markets. That provides a favourable backdrop for domestic equities.

The country is also supported by strong domestic consumption, rising private-sector capital expenditure, sustained government infrastructure spending and an expanding manufacturing base.

Corporate earnings are expected to continue growing at a healthy pace, backed by favourable demographics, increasing formalization of the economy, digitalisation and resilient domestic demand.

Unlike many export-led economies, India's growth is driven primarily by domestic demand, making it relatively more resilient to global slowdowns.

While some global markets may outperform over shorter periods, India's long-term performance has been consistently strong. Over the past decade, it has delivered annualized returns of 12-13%.

Large-cap stocks have recently underperformed because of sustained foreign portfolio investor (FPI) outflows and weakness in the IT sector.

Small-cap earnings, meanwhile, have been more broad-based. Sectors such as industrials, capital goods, defence, specialty chemicals, railways and domestic consumption-linked businesses have continued to report healthy earnings growth, supported by government capital expenditure, manufacturing expansion and robust domestic demand.

Going forward, however, large-caps are expected to regain relative strength as foreign institutional investors return.

Indian markets are likely to be driven by Q1FY27 earnings growth, strong domestic liquidity, policy support and a revival in foreign institutional inflows.

The biggest near-term risk remains geopolitical tensions in West Asia, which could affect macroeconomic conditions, crude oil prices and foreign investor sentiment.

Srushti is a markets reporter at Mint. She writes on equity markets, and her areas of coverage range from brokers and exchanges to mutual funds and the fast-evolving alternatives space, including GIFT City, from the financial capital of India. She has an experience of over three years in journalism, and has previously worked at Moneycontrol. She has an undergraduate degree in mass communication and a postgraduate diploma in business and financial journalism from Asian College of Journalism, Chennai.<br><br>Srushti prefers meeting people from the industry over making calls. Her work aims to drive impact—her story on illegal gold imports, for instance, caught the government’s attention and contributed to a policy shift. She specialises in turning complex market data into clear, engaging stories so even her grandmother could understand futures and options.<br><br>Outside of the newsroom, she enjoys spending money on jewellery and watching thriller films—especially the kind that keep her awake at night. She spends 1.5 hours a day commuting in Mumbai locals, listening to horror podcasts on her way to work. She’s also very talkative—so reach out only if you have lots of time.

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