New Delhi [India], April 7 (ANI): Indian equity markets are entering a critical phase as global geopolitical tensions, particularly the ongoing Iran-Israel/US conflict, cloud near-term prospects despite strong domestic fundamentals, according to a recent report by Motilal Oswal Financial Services.

The report noted that while India benefits from multiple structural tailwinds, 'the near-term market set-up has been vitiated by the Iran-Israel/US war,' given the country's heavy dependence on energy flows through the Strait of Hormuz.

A significant portion of India's energy imports is at risk, with '35-40% of crude demand and 54% of pre-war LPG needs' passing through the region, making the economy vulnerable to disruptions.

Reflecting these headwinds, corporate earnings growth is expected to moderate in the March quarter. The report projects that earnings for the MOFSL universe will grow at a slower pace of '10% YoY... lower than the 18%/15% YoY growth recorded in 3Q/2QFY26.'

The slowdown is largely attributed to a sharp rise in energy prices, as the lower growth in 4Q is clearly attributable to the impact of higher crude oil and gas prices. The surge in crude has also reversed earlier positive earnings revisions and triggered a broader market correction.

However, despite the current volatility, the report highlights that underlying domestic factors remain supportive. These include policy reforms, improved demand conditions, and strong investor participation. It added that India is supported by 'a favourable base year characterised by multiple fiscal and monetary accommodative measures... and sustained faith from retail investors.'

Driven by rising crude prices, currency pressures, and record foreign investor outflows, the markets have seen a sharp correction amid uncertainty and Indian indices have witnessed a double-digit decline across indices.

The report emphasised that the trajectory of global risk assets will largely depend on geopolitical developments. 'A resolution to the Iran-Israel conflict holds key to risk assets,' it said, warning that prolonged tensions could weaken the investment outlook further.

At the same time, valuations have become more attractive following the correction. The Nifty is now trading at a discount to its long-term averages, and valuations have become much more sober, improving the risk-reward balance for investors.

Looking ahead, the report remains cautiously optimistic on medium-term prospects. It expects policy measures undertaken in FY26 to start yielding results, stating that reforms could yield delayed gratification in FY27 and catalyse a positive market response once the war clouds dissipate. (ANI)