NEW DELHI, June 23 — The ongoing conflict in West Asia is expected to weigh on corporate profit margins across sectors in the first half of FY27, though a reversal is likely in the second half, according to a research report by Nuvama.
The report said the impact on sectoral earnings will vary depending on how companies absorb the oil shock, competitive pressures within their industries, and changes in demand.
It noted that the burden of higher energy costs differs sharply across sectors. Some automobile manufacturers have largely absorbed the additional costs, directly squeezing margins, while consumer-facing companies such as paint makers have passed on the burden to customers, which could slow sales volumes.
The report said competition will ultimately determine whether earnings can recover once the initial impact of higher oil prices begins to fade.
“Our strong belief has been that profit margins tend to revert to the mean,” the report said. “Thus, a good way to gauge the impact is to look at sectors that are at cyclical bottom margins and expect them to rebound post war.”
However, broader demand challenges are expected to persist into the second half of the fiscal year. The report said the support from earlier Goods and Services Tax cuts is likely to fade on a year-on-year basis, while El Niño could hurt agricultural output and weaken rural consumption.
Income conditions also remain subdued across households, companies and the government, making these economic agents more cautious about capital expenditure. Credit transmission also remains weak, with leverage shifting toward households and micro, small and medium enterprises facing slow income growth, or toward working capital funding.
“A competitive INR and some spillovers of the global AI capex boom are some of the offsets,” the report added. “However, it is insufficient to accelerate earnings.”
The projected slowdown is likely to fall short of current market expectations. The report said consensus forecasts currently stand at a high 19 percent profit after tax growth for the BSE 500 index, excluding oil marketing companies, compared with 9 percent year-on-year growth recorded in FY26.
Nuvama said this gap between expectations and ground realities is likely to lead to further downward revisions in earnings estimates.
“Thus, from the overall discussion above, it appears that earnings acceleration is still unlikely even if one reverts back to pre-war trends, as some of the tailwinds (GST cuts, rate cuts) fade on a YoY basis, while income dynamics remain subdued,” the report said.
The report added that a weaker domestic currency may offset some of the operational headwinds, but consensus estimates remain elevated and vulnerable to future downgrades.
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