Indian markets offer strong 'alpha' opportunities in FY27 despite Middle East risks
India’s equity markets are likely to offer strong alpha opportunities in FY27 despite the ongoing West Asia conflict, supported by sectoral divergence, resilient macro buffers and potential recovery in foreign flows, a new report said on Wednesday.
According to Motilal Oswal AMC, the escalation in the West Asia conflict has introduced uncertainty around oil prices, inflation, currency movement and FY27 earnings estimates, and also created a fertile ground for stock-specific opportunities.
“We think the construct offers a great chance for alpha,” said Prateek Agrawal, MD and CEO, Motilal Oswal AMC, adding that volatility and dispersion across sectors could enable active investors to outperform.
Despite being among the more impacted large economies due to its energy dependence, India remains relatively better placed than many peers owing to its diversified fuel sourcing, strong foreign exchange reserves and lower dependence on oil for power generation.
Moreover, energy imports account for about 2.8 per cent of GDP, with nearly half sourced from the Middle East.
However, forex reserves covering over seven months of imports and around 70 days of oil reserves are expected to provide a cushion in the near term.
Agrawal also pointed to India’s ability to process a wide range of crude, including supplies from Russia, as well as its coal-based power ecosystem, which helps limit the impact of global energy shocks on industrial output.
Looking ahead to FY27, the outlook remains scenario-driven, with different sectors likely to outperform under varying conditions, he mentioned.
If the disruption persists, domestically produced commodities such as metals, chemicals and food could benefit from higher prices, while sectors like electric vehicles (EVs) and renewables may see sustained policy and investor interest.
On the other hand, a resolution of the crisis could trigger a revival in growth-oriented segments such as capital markets, non-banking financial companies (NBFCs), electronics manufacturing services (EMS), and new-age technology sectors including fintech.
Agrawal added that banking stocks, which have seen sharp corrections due to foreign portfolio investor (FPI) outflows, are now trading at attractive valuations and may offer value opportunities going forward.
He also sees the possibility of FPI flows returning if oil prices stabilise and the rupee strengthens, which could further support market performance in FY27.
“Chances of the market sustaining its level and delivering better-than-earnings growth outcomes are high, subject to prevailing risks and uncertainties,” said Agrawal.
While risks related to sustained high oil prices, gas availability and external balances remain, the overall environment could turn favourable if geopolitical tensions ease, making FY27 a potentially rewarding year for investors focused on earnings growth and stock selection.
