Iran conflict may hit corporate earnings if crisis drags on

Corporate earnings in India could come under pressure if the ongoing conflict involving Iran continues for more than a few weeks, as rising oil and gas prices may negatively impact the economy and financial markets, according to a report by Kotak Institutional Equities.

The report warned that prolonged geopolitical tensions in the Middle East could create downside risks for Indian companies, mainly due to the country’s heavy dependence on imported crude oil. If energy prices remain elevated for a longer period, it could increase production costs across sectors and affect corporate profitability.

According to the brokerage firm, the recent escalation in the Middle East has already begun influencing investor sentiment. Foreign investors, who closely monitor global geopolitical developments, have become more cautious due to concerns over energy supply disruptions and macroeconomic stability.

India remains particularly vulnerable to oil shocks as it imports a significant share of its crude oil requirements. Any sharp increase in global energy prices could lead to higher inflation, increase the country’s import bill and put pressure on the current account balance.

The report also highlighted the possibility of a widening current account deficit if oil and gas prices stay high for a prolonged period. Supply disruptions in energy markets could further increase India’s external vulnerabilities and add pressure on the broader economy.

However, the report noted that domestic factors could still provide some support to markets. Steady inflows into local equities and India’s medium-term growth prospects remain positive factors that may help cushion the impact of global uncertainties.

It added that the biggest downside risk for markets would be a prolonged Middle East crisis leading to sustained disruptions in oil and gas supplies and further price increases.