Synopsis

Aftershocks

The Gulf war that commenced on February 28 has sent a man-made earthquake through the global economy. For India, the aftershocks are not receding — they are intensifying.

In this month's note, CIO P. Krishnan offers a clear-eyed assessment of the cascading economic consequences of the Gulf conflict and what it means for Indian investors. The analysis moves beyond surface-level optimism to confront the structural vulnerabilities that make India particularly exposed to this crisis.

With energy self-sufficiency at 65% and oil self-sufficiency at just 13%, India sits in an acutely vulnerable position — better than Japan or the EU in absolute terms, but lacking the political headroom of developed economies to absorb the shock.

Linkages & Unintended Consequences

The impact radiates outward in waves — from LPG shortages and INR depreciation, to FMCG cost pressures and auto demand destruction, to bank asset quality risks and ultimately a drag on IT services and GDP through global recession effects. The note argues that prior comparisons to past oil shocks are largely disingenuous, given the depth and simultaneity of today's linkages. The Strait of Hormuz is not merely an oil chokepoint — a meaningful share of global growth flows through it.

Balance of Payments Under Historic Stress

Every variable is deteriorating simultaneously — exports, imports, IT services revenues, Gulf remittances, FDI, FPI flows, and interest rate differentials. The newsletter describes India's current external position as the worst seen in at least 25 years. The INR has depreciated 11% against the USD in FY26, its third worst annual performance on record. Stabilising the currency may require an uncomfortable interest rate increase that trades near-term growth for long-term credibility.

A Valuation Reality Check

FPIs have sold INR 11.7 lakh crore in Indian cash equities since 2021 — nearly double the total they brought in from 2012 to 2020. Meanwhile, domestic investors have absorbed the bulk of this selling at a weighted Nifty level of 23,710. The trailing 12-month median PE of India's top 502 listed companies stands at 37x today, versus 14x at the March 2020 lows. The note makes a critical distinction: oversold market breadth does not automatically create a buying opportunity. Mere price destruction is not the same as value.

Where Does That Leave Us?

The newsletter closes with cautious, disciplined optimism. As the market corrects further, the risk-return equation will gradually improve. There is an opportunity to deploy capital with a long-term view — but only anchored in sound investment fundamentals, earnings visibility, and genuine margin of safety, not narrative or price momentum alone. The eventual recovery will be driven by themes that may have seemed unglamorous in the past.

"Growth is not going to come easy. India is likely to settle down into a market for adults. It is time to grow up." — P. Krishnan, MD & CIO, Spark Asia Impact Managers