It has been approximately 100 days since the geopolitical escalation involving the US, Israel and Iran altered the global macroeconomic landscape. Periods such as these inevitably generate uncertainty. News flow becomes intense, market sentiment turns fragile and investors are often left wondering whether short-term developments have altered the long-term investment case for equities.
At Ithought, our objective during such periods is not to predict headlines but to evaluate how underlying businesses, economic fundamentals and market valuations are evolving.
Large-cap companies, which have higher foreign institutional ownership and greater integration with global capital flows, have experienced more pronounced pressure. Mid-cap and small-cap segments, supported by domestic savings and institutional flows, have demonstrated greater resilience.
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The Economic Impact: Real but Manageable
The conflict has introduced meaningful macroeconomic headwinds.
Higher crude oil prices increase India’s import bill, place pressure on corporate margins and influence inflation expectations. At the same time, a softer global growth environment has led several institutions to moderate their forecasts for economic growth.
These developments warrant attention. However, they should be viewed in the context of an economy that entered this period with relatively healthy banking balance sheets, improving corporate leverage metrics and an ongoing private and public sector investment cycle.
Managing the Energy Shock
One of the more important developments over the past few months has been the measured transmission of higher global energy prices into the domestic economy.
Rather than allowing the entire increase in crude prices to flow immediately to consumers, policymakers and oil marketing companies have moderated the pace of adjustment. This has reduced the risk of a sudden inflationary shock to households and businesses, while providing time for supply chains and corporate planning cycles to adapt.
The trade-off, of course, is that portions of the cost burden are temporarily absorbed elsewhere within the economic system. Such measures help smooth volatility but do not eliminate the underlying impact of higher energy costs.
The Reserve Bank of India’s recent policy stance reflects this balancing act.
By maintaining the repo rate at 5.25% while modestly revising growth and inflation assumptions, the RBI appears to be signalling that the current challenge is one of managing external shocks rather than responding to a broad-based deterioration in domestic demand.
Importantly, core inflation remains relatively contained, suggesting that inflationary pressures are concentrated in a few externally driven areas rather than being widespread across the economy.
What Matters for Investors
The last 100 days have reinforced a lesson that markets teach repeatedly: geopolitical events often create short-term volatility, but long-term returns are ultimately determined by earnings growth, capital allocation and business quality.
The questions we continue to ask are straightforward:
- Are companies gaining market share?
- Are balance sheets strengthening or weakening?
- Is capital being deployed productively?
- Are earnings expectations realistic?
- Do current valuations adequately compensate investors for risk?
These questions matter far more than the daily movement of crude prices, currency markets or geopolitical headlines.
While near-term uncertainty remains elevated, we do not believe the developments of the past 100 days have fundamentally altered India’s long-term growth trajectory. They have, however, created pockets of valuation adjustment and dispersion that warrant careful analysis.
Periods of uncertainty rarely feel comfortable in real time. Yet they are often when disciplined investors are able to distinguish between temporary macroeconomic disruptions and permanent changes in business fundamentals.
Our focus remains unchanged: owning high-quality businesses, maintaining valuation discipline and allowing compounding to work over long periods of time.
