Markets overlooking macro stress, says Kunal Vora amid oil and currency shock

The Indian equity market may be showing signs of calm after recent volatility, but beneath the surface, macroeconomic pressures are quietly building. With Brent crude breaching $120 per barrel and the rupee slipping toward 95 against the dollar, concerns are mounting over whether markets are adequately factoring in the impact on corporate earnings and macro stability.

Speaking to ET Now, Kunal Vora from BNP Paribas noted that the current market behaviour suggests a degree of complacency.

“I agree. I mean, like say that statement makes sense partially. The kind of recovery which we have seen in the last one month after the initial hit which the market took during the conflict does indicate that market is like really overlooking these worries. And I do feel that what we will start seeing is some earnings cuts will start coming in with the kind of levels which we see for crude as well as currency…” he said.

Vora added that early signs of economic softness are already emerging, even if they are not yet fully reflected in reported earnings.

Earnings Risk Building Beneath the Surface

According to him, the current earnings cycle is still benefiting from last year’s strong base, masking underlying weakness.“Right now what we are seeing in terms of earnings is more a reflection of the good work which we saw in the last year,” he said, adding that the coming quarters could tell a very different story.On the risk to earnings, Vora highlighted that the impact depends heavily on how long crude remains elevated and how global conditions evolve.He pointed to historical cycles where crude above $100 had a meaningful impact on Indian corporate earnings, especially during prolonged periods.

“In the period of 11, 12, 13 what we saw was a sharp decline in earnings. Nifty earnings were lowered by about 8% through the course of CY12,” he explained, contrasting it with shorter spikes like 2022, where the damage was limited.

Nifty Earnings Estimates May See Downward RevisionWith consensus Nifty earnings currently pegged around 17%, Vora believes expectations are running ahead of reality.

“That number looks pretty elevated… those numbers will have to start coming off, which will start reflecting more in the coming quarter, like say in 1Q FY27,” he said.

He estimates that if crude sustains around $100 or higher, earnings growth expectations could moderate sharply.

“This 17% number could certainly come down to 10-12%,” Vora noted.

Already, earnings estimates across sectors are being revised. Autos, cement, consumer staples, and durables have seen cuts, while financials have also been adjusted lower due to weaker credit growth expectations.

Second-Order Effects and Fiscal PressureBeyond direct input cost inflation, Vora warned of second-order effects such as fuel price transmission, demand slowdown, and fiscal constraints.

A prolonged crude spike, he said, could also restrict government spending.

“From a government perspective, the headroom to spend will be low… that is something which could hurt sectors like infrastructure,” he added.

Where Markets May Find ShelterDespite the challenges, Vora believes certain sectors are better positioned to withstand the current macro pressure.

He pointed to defensives and export-oriented sectors as relative safe havens. “Sectors like consumer staples, telecoms… IT services and pharma end up doing well in these times and utilities,” he said.

However, he warned that commodity-consuming sectors will remain under pressure. “Consumer durables, cement, automobiles… these are all sectors which do start taking a margin hit,” Vora added.

Consumption: Resilient but Under PressureOn the consumption story, Vora acknowledged near-term risks from rising input costs and rural demand uncertainty, but maintained that structural resilience remains intact.

Even within FMCG, he believes divergence will be key. “Is there a risk to earnings? Certainly,” he said, pointing to rising costs of packaging materials and edible oils.

However, he added that companies with stronger pricing power and GST-related benefits may hold up better than peers.

Outlook: Caution Building Into FY27While demand has not collapsed, Vora suggests the optimism seen earlier this year is fading. Commodity pressures, currency weakness, and crude inflation are now re-entering the equation.

The result, he implied, is likely to be a more tempered earnings outlook going forward, with FY27 expectations already beginning to be revised lower across sectors.

For now, markets may continue to look steady on the surface—but macro signals suggest the next earnings cycle could look very different from the last.