Rising tensions in West Asia are prompting reassessment of risk among Indian market participants, particularly concerning energy supplies, currency volatility, and foreign capital flows, according to Sridhar Sivaram of Enam Holdings Ltd.
Sivaram, speaking to ET Now, highlighted India’s significant economic ties to the Gulf Cooperation Council (GCC) region, noting the country imports approximately 50% of its crude oil and 30-40% of its liquefied natural gas (LNG) from GCC nations. Remittances from the region also represent a substantial economic factor. “If this prolongs for more than a month or say two months, then we have a massive impact,” Sivaram stated, referring to a prolonged conflict. “The broad view is this does not happen, but we do have an impact.”
The Indian rupee has recently breached 92 per dollar, adding to concerns about economic stability. Sivaram suggested that outflows from foreign institutional investors (FIIs) are partly driven by stronger earnings growth opportunities in other Asian markets. He pointed to anticipated earnings growth of 100% in Korea and 25-30% in Taiwan, largely fueled by the artificial intelligence sector and demand for semiconductors. China is also projected to see earnings growth in the 15-18% range.
In contrast, India has experienced slower profit growth over the past year and a half, with single-digit increases. While Sivaram anticipates earnings growth to reach 15% in fiscal year 2027, beginning April 1st, he acknowledged that this still lags behind other Asian economies. “So, I think that is the challenge that India has struggled with single-digit earnings growth for the last 18 months,” he said. He noted that valuations in India remain higher than in Korea, Taiwan, and China, further impacting the attractiveness for foreign investment.
Sivaram believes a return of FII capital to India will be delayed by the relative attractiveness of other Asian markets. “Korea has had lot of volatility, but that market is still up 30% for the year. Year to date it is up 30%,” he observed. He emphasized the broad economic impact of any prolonged disruption in the GCC region, extending beyond oil to include LNG and remittances. “It is remarkably hard to exactly pinpoint what the impact could be…we have multiple macro touch points which arrive from the GCC countries.”
He cautioned that companies with exposure to the Middle East may face earnings uncertainties in the current quarter, but suggested the impact could settle within a quarter’s time. Sivaram also expressed caution regarding the information technology (IT) sector, suggesting a structural challenge related to the impact of artificial intelligence. He described the situation as a “PE derating event,” comparing it to the long-term impact on the media sector from the rise of over-the-top (OTT) streaming services.
Sivaram indicated that, despite geopolitical risks, Indian benchmark indices have shown relative resilience, but cautioned that this may mask underlying weakness in the broader market. He anticipates that earnings growth could benefit from a favorable base effect in the coming year. “I do think that the next year we will see 15% growth because we have a very low base effect,” he stated.
He also noted that no clear investment opportunity exists in India specifically related to artificial intelligence, stating, “No FII is coming to India to play the AI trade. The AI trade as far as Asia or emerging market is concerned is in Korea, Taiwan and their earnings are real.”
