The conflict involving Iran has pushed oil markets into volatility and introduced a new layer of uncertainty for corporate earnings, particularly for sectors heavily dependent on crude-linked inputs. Analysts say the earnings rebound that investors expected in the second half of the fiscal year may now face near-term pressure if energy prices remain elevated.
This will come as a big blow for a market that is current hoarding 80% of stocks, which are firmly in bear grip. Among all listed companies with a market cap above Rs 1,000 crore, more than 64% have fallen 30% or more from their all-time highs. Nearly 78% have fallen 20% or more.
Rosy expectations after Q3
The earnings season had reinforced confidence in a broad-based recovery. According to Motilal Oswal, the December quarter marked the fourth consecutive quarter of double-digit profit growth for Indian companies. Sectoral participation also widened. Of the 27 sectors under its coverage, 19 reported double-digit growth, while only three recorded a decline in profit after tax.
The broker noted that the pace of earnings cuts had slowed through the first half of the year and eventually shifted toward upgrades. The recovery had been supported by a combination of policy measures and domestic demand trends. Monetary easing and fiscal spending helped stabilize the macro environment, while easing input costs improved operating margins across several sectors.
Before the war began, the outlook for corporate earnings looked rosy. For instance, Motilal expected about 12% earnings growth for the Nifty between FY25 and FY27, even as valuations remain close to long-term averages.
The impact of war
Oil prices have risen sharply as the conflict in the Middle East intensified and fears of supply disruption grew around the Strait of Hormuz, a crucial shipping route for global energy trade. For India, the stakes are particularly high because of its dependence on imported crude.
Ravi Singh, chief research officer at Master Capital Services, said the surge in crude prices has created fresh uncertainty for the earnings outlook. “After a subdued first half of the fiscal year, India Inc was widely anticipated to stage a meaningful earnings recovery from the second half of FY26 onward. The recent spike in crude oil prices driven by escalating Middle East tensions has introduced a fresh layer of uncertainty,” Singh said.
India imports nearly 85% of its crude oil requirements, and about half of those imports pass through the Strait of Hormuz. A sustained rise in crude prices affects not only individual sectors but also the broader economic cost structure.
Singh said that higher energy prices can ripple across industries simultaneously. “A sustained elevation in crude prices doesn’t just dent sectoral margins, it disrupts the entire cost architecture of multiple industries and the wider economic outlook,” he said.
Several sectors are particularly exposed to higher oil prices. Downstream oil companies, paints, tyre manufacturers and chemical producers are among the industries where raw material costs are closely linked to crude oil. Aviation companies may face an even sharper impact because fuel expenses account for a large portion of operating costs.
Airlines could face what analysts describe as a double squeeze. Aviation turbine fuel prices are rising at the same time as flight routes are being disrupted by regional tensions, which increases travel distances and operating expenses.
Niraj Rathi, senior director for ratings at Brickwork Ratings, said the aviation sector is facing a “triple threat” from higher fuel costs, longer routes and weaker load factors. “A 25% fuel spike could slash margins by 400-500 basis points even if airlines pass on half the cost increase to customers,” Rathi said.
The ripple effects extend beyond aviation. For industries such as paints, crude-linked inputs account for more than half of total costs. Rathi said a similar oil spike could reduce margins in the sector by as much as 800 basis points, depending on how quickly companies are able to raise prices.
Manufacturing industries that depend on petrochemical feedstocks may also face pressure. Chemicals, tyres and cement producers rely on crude derivatives such as naphtha, benzene and synthetic rubber, which become more expensive as oil prices rise.
Higher shipping costs and supply disruptions could further increase working capital requirements for exporters and industrial companies.
Beyond corporate margins, the oil shock carries broader macroeconomic implications.
A sustained increase in crude prices raises India’s import bill and puts pressure on the rupee. Currency weakness, in turn, increases the cost of imported raw materials for companies across sectors. Sourav Choudhary, managing director at Raghunath Capital, said rising oil prices could delay the earnings recovery that markets were anticipating.
“India Inc’s earnings recovery after the third quarter could face a near-term headwind if the Iran conflict keeps crude oil elevated. India imports over 80% of its crude requirements, so any sustained spike in Brent tends to push up inflation, weaken the rupee and increase input costs for sectors such as aviation, chemicals, paints and logistics,” he said.
Global strategists estimate that a 20% increase in oil prices could reduce regional corporate earnings by around 2%, Choudhary added. Still, not all sectors will be affected equally.
Energy producers and refiners could benefit from higher crude prices, while defense companies may see stronger demand as geopolitical tensions rise.
Santosh Meena, head of research at Swastika Investmart, said the oil surge introduces a “war premium” risk for earnings, particularly if Brent crude remains above $80–$85 per barrel.
“Oil-sensitive sectors such as aviation, paints and tyres are likely to face margin pressure, while upstream oil companies and the defense sector may see earnings upgrades,” Meena said.
Even so, some analysts believe the broader earnings recovery remains intact as long as the conflict does not escalate further.
Arpit Jain, joint managing director at Arihant Capital Markets, said the impact on India may be less severe compared with other major economies.
“India Inc remains on track for a recovery. While the crude surge will raise input costs for certain companies, the overall effect on India is likely to be less severe than for many global economies,” Jain said.
For now, the earnings outlook hinges on the duration of the geopolitical crisis.
If oil prices remain elevated for a prolonged period, companies may be forced to shift from expanding margins to defending them. But if the conflict stabilizes and energy prices retreat, the recovery narrative that began in the third quarter could resume.
The next few months will determine whether India Inc’s earnings cycle continues its upward trajectory or enters another phase of uncertainty driven by global shocks.
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