The recent bout of volatility in Indian equities, triggered by geopolitical tensions and sharp foreign outflows, may be approaching an inflection point, according to Emkay Global. After a near 5 percent decline in the Nifty over three trading sessions, the brokerage has indicated that markets are likely close to a bottom, supported by improving global signals and easing commodity pressures.

The correction was largely driven by risk-off sentiment following developments in the Middle East, which led to foreign portfolio investor outflows of approximately $2.5 billion. However, the global backdrop has since shown signs of stabilization. The US decision to suspend air strikes on Iran has reduced immediate geopolitical risks, leading to a 1.6 percent rise in the S&P 500 and a sharp 12 percent fall in Brent crude prices. This shift is particularly relevant for India, given its high dependence on imported crude.

Within this context, Emkay expects Indian markets to stage what it describes as a “smart recovery.” The brokerage maintains its December 2026 Nifty target of 29,000, implying continued confidence in earnings growth and valuation stability. The target is based on a 20x price-to-earnings multiple and assumes FY27 earnings growth of around 15 percent, anchored by domestic consumption resilience.

The report highlights that easing crude prices are a key macro lever. Lower oil prices not only reduce inflationary pressures but also improve fiscal dynamics and corporate margins, particularly in consumption-linked sectors. The brokerage expects Brent crude to stabilize in the $75–80 per barrel range once clarity emerges around the reopening of the Strait of Hormuz and broader geopolitical conditions.

On the domestic macro front, Emkay sees additional tailwinds. The rupee is expected to strengthen towards Rs 91 per dollar, while the 10-year government bond yield could ease to around 6.65 percent. These factors collectively improve financial conditions, supporting both equity valuations and corporate borrowing environments. While real economic normalization may take two to three months, asset markets are likely to price in these improvements earlier.

From a sectoral perspective, the brokerage is clearly tilting towards cyclicals and domestically oriented plays. Oil marketing companies, private sector banks, non-banking financial companies, and automobile manufacturers are identified as key beneficiaries of the recovery phase. These sectors stand to gain from easing input costs, improving credit demand, and normalization of consumption trends.

Stock-specific ideas reflect this broader theme. Larsen & Toubro is highlighted for its relatively limited exposure to Middle East risks, reducing earnings uncertainty in the current environment. HDFC Bank is seen as offering valuation comfort following what the brokerage terms an overreaction to recent management changes. Bajaj Finance and Shriram Finance are positioned as relatively insulated from fuel price volatility, with the latter having corrected excessively on such concerns.

In the automobile and mobility space, InterGlobe Aviation is expected to benefit from a correction in aviation turbine fuel prices and operational normalization, while Ashok Leyland could see easing concerns around diesel price hikes. These calls collectively suggest a tactical shift back into cyclicals after the recent defensive positioning by investors.

Conversely, Emkay has flagged potential relative underperformance in traditional “protection trades.” Technology stocks, along with large energy names like Reliance and ONGC, may lag as risk appetite returns and investors rotate towards more economically sensitive sectors.

Despite the improving outlook, the brokerage does not dismiss near-term risks. It cautions that earnings could still face some pressure in Q4FY26, with potential spillover into Q1FY27. Supply chain disruptions linked to the Strait of Hormuz situation may take one to two months to fully normalize, and any damage to energy infrastructure in the Middle East could delay a complete recovery in oil markets.

The estimated impact on Nifty earnings is relatively contained at 1–2 percent for FY27. However, small- and mid-cap companies may see slightly higher, though temporary, downgrades due to their higher sensitivity to input costs and supply chain disruptions.

From an India market perspective, the report underscores a critical shift. If crude prices remain benign and geopolitical risks continue to ease, India stands to benefit disproportionately compared to other global markets. This is primarily due to its structural exposure to imported energy and its consumption-driven growth model.