As the West Asia war continues to rattle equity markets and sectors across the economy, Prashant Jain, Founder and CIO, 3P Investment Managers, said India’s vulnerability to oil has moderated and hence the impact of US/Israel-Iran conflict would be marginal and transient for India. While sectors such as autos, airlines, real estate, and cement would be among the most directly affected, the sharp decline in the Nifty in March, combined with an 18‑month time correction, has led to a meaningful moderation in valuations. There is clear value in the market for long‑term investors. Even in a challenging environment, he said, the downside risk is limited. Edited Excerpts:
How do you see the war and its impact on the markets?
The first three months of 2026 have arguably been more eventful than the preceding three years. We started the year worrying about trade disputes and the US tariffs, the narrative shifted to the disruptive impact of AI and is now overtaken by geopolitical risks around Hormuz. The asset prices seem to be rattled by this rapid turn of events with USD prices of gold, silver and bitcoin down 16%, 38% and 46% respectively from their recent peaks. Stock markets that are expected to be more volatile have surprisingly held up reasonably well with Dow down 8% and Nifty down 14% from their recent peaks.
I believe the impact of the current US/Israel-Iran conflict is marginal and transient for India.
How vulnerable is India to rising oil prices?
The only meaningful impact is because of higher prices of crude oil & gas and a disruption in availability. It is worth noting that India’s vulnerability to oil has considerably moderated over time. Oil imports as a share of GDP have declined from over 5% in FY2013 to 3% currently. This along with rising services exports have played a key role in moderating India’s current account deficit (CAD) to nearly 1% compared to 2-3% in the past. Back in 2000-08, Indian economy displayed remarkable resilience with real economic growth at approximately 7% a year even when oil prices rose from USD 25/bbl in 2000 to USD 140/bbl in 2008.
What is the key concern for India?
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From India’s perspective, if Hormuz does not open for an extended period, it will lead to sustained and maybe even higher oil prices adversely impacting CAD and consequently, the INR. This worries FIIs and they continue to sell putting pressure on balance of payments (BOP) and the INR. Higher energy prices and weak INR lead to inflation which together with potentially adverse impact of AI on jobs could lead to a consumer slowdown resulting in lower capex and corporate earnings.
However, the above mentioned reasoning overlooks the reduced vulnerability of India to higher oil prices, the resilience of the Indian economy, and the fact that FIIs have already sold $12.7 billion worth of stocks in March, the highest ever in a single month. It also assumes the government and RBI will take no measures to support the economy.
How do you see impact across market capitalisations?
I believe Large‑cap stocks remain relatively resilient in the current environment, largely because their exposure to rising crude oil and gas prices is limited. Banking, which is the largest index constituent, could in fact benefit from a steepening yield curve, rising bond yields, and increased working capital requirements across certain sectors. This, however, assumes the stress being temporary and not translating into meaningful asset‑quality issues over the medium term.
How do you see the impact on various sectors in India?
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Defensive sectors such as IT, pharmaceuticals, healthcare, telecom, tobacco, and FMCG are expected to see only a marginal impact. In contrast, sectors like OMCs, autos, airlines, real estate, and cement are among the most directly affected in my view.
The pressure is likely to be more pronounced in sectors where raw‑material availability is disrupted and cost increases cannot be fully passed through. These include fertilisers, packaging companies, and select chemical manufacturers.
How low can the markets go and do you see a buying opportunity?
Even in a challenging environment, I believe the downside risk is limited and largely transient. In an extreme scenario, earnings yields are unlikely to rise materially above bond yields, given India’s strong structural growth outlook, steady domestic institutional inflows, and the favourable tax treatment of equities relative to bonds. On a 7% earnings yield framework, market valuations should find support around 14x PE. This implies that even in a low‑probability stress scenario, large‑cap stocks could correct by up to 20%, while mid‑ and small‑cap segments are likely to see relatively deeper drawdowns.
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While you see value in the long term, what is the medium term outlook of market growth and what can investors expect?
Looking ahead, the medium‑term return potential remains attractive. Over the next three years, returns of around 15% CAGR or about 50% in aggregate are achievable from current levels. The coming days, weeks, and months therefore present a good opportunity for investors to increase equity exposure, though the pace and extent will depend on an individual’s risk appetite.
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