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Informist, Tuesday, May 19, 2026

MUMBAI – Emkay Global Financial Services expects the Reserve Bank of India to hike repo rate by 100 basis points in 2026-27 (Apr-Mar), if the energy crisis due to the West Asia war continues, it said in a media roundtable Tuesday. "We also think that if this (West Asia war) scenario continues and the external account stays under pressure, the RBI may be forced to hike (repo) rates sooner rather than later," Seshadri Sen, head of research and strategist at Emkay Global, said. However, if the energy crisis subsides, the brokerage expects the central bank to take only a 25 bps rate hike in FY27 to address the short-term impact of higher energy prices.  

The brokerage also expects the RBI to adopt other defence mechanisms, including direct intervention, to support the rupee. Interest rates by themselves are unlikely to create any major defence for the rupee in a "sell-off situation", Sen said. Since the war in West Asia started, the Indian unit has depreciated around 6% against the dollar.

While the brokerage's base case remains the reopening of the Strait of Hormuz in the coming months and energy prices normalising, in case the energy crisis continues for another three months, it sees the Nifty 50 index falling to 21000 points, which is about 12.5% below its long-term average price to earnings ratio. But if this does not pan out, the brokerage sees significant upside for the domestic market with the expectation of a strong earnings recovery in FY28. Tuesday, the Nifty 50 index closed at 23618, down 31.95 points or 0.1%.  

With a fairly good earnings growth momentum and commentary in the March quarter, the brokerage expects the real stress of the energy crisis to be visible from the June quarter. In case of no resolution to the ongoing Iran war, it expects that the market will ignore the better-than-expected March quarter earnings. On the other hand, if the energy prices normalise and supply chains stabilise in the first half of FY27, the brokerage remains confident of a broad-based earnings recovery in FY28. "And if the market does correct in the near term, that would be a buying opportunity," Sen said. 

Going forward, the brokerage expects more staggered retail fuel price hikes, taking petrol prices to INR 110 per litre. This would, however, still cover only 50% of the under-recoveries of oil marketing companies, Emkay Global said. An under-recovery occurs when the selling price of a petroleum product is lower than the cost of producing it. Indian Oil Corp. Ltd. hiked the retail prices of petrol and diesel by around INR 90 paise per litre each, Tuesday, the second increase in a week. 

Once the Strait of Hormuz reopens and crude settles at around $80 per barrel, Emkay sees foreign portfolio investors coming back to India amid strong earnings recovery. So far, in 2026, foreign portfolio investors have net sold domestic equities worth over INR 2 trillion, way higher than the INR 1.6 billion net sold in 2025. The brokerage noted that these investors are a "little overweight" on financial services sector compared to others, and with expectations of a strong earnings recovery in sector in the coming years, there is a lot of optimism that India could attract more foreign funds. 

On the sectoral front, even though the brokerage remains "slightly underweight" on information technology due to cyclical weakness, it belives that the market has "over-discounted" the risk of artificial intelligence-led revenue deflation on these companies. "We do acknowledge that AI is a bit disruptive to that sector, but we don't think (it) will wipe out IT services," Sen said. "There are some companies which will be more adaptable and be able to adapt, but clients will still need IT services companies help with their transition to (AI)," he added. He also highlighted that the market has ignored the size of opportunity with AI bringing in new use cases, which forces companies to invest much more in IT services.

Emkay Global remains overweight discretionary on multiple levers, including benefits from the goods and services tax cut. It expects consumption recovery to return to focus once the West Asia war settles. In this, the brokerage remains bullish on automobiles and internet companies. The brokerage is also overweight on industrials, especially in the power and defence space, where it expects strong capital expenditure to continue. However, it warned that valuations are a challenge and one may have to be a little selective on the space.  End

US$1 = INR 96.5325

Reported by Arya S. Biju and Arundathi A R

Edited by Akul Nishant Akhoury

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