April, 2026

On War Footing

Mohit Dugar, CFA

April marks a special month for us at Pinnacle Finvest, as we turn one. We would like to thank all of you for your support and continued trust in us. Let’s grow together!

The month of March started with a literal bang, with US-Israel strikes on Iran starting a war in the Middle East. These strikes have led to a lot of fatalities, with the most high-profile being that of the Iranian Supreme Leader – Ayatollah Ali Khamenei. As a consequence of these strikes, Iran has blocked the Strait of Hormuz through which approximately 20% of the world’s energy supply passes. This has led to the price of crude spiraling out of control at over $100 a barrel. This escalation has spooked countries worldwide regarding the impact on inflation and future trajectory of rate cuts – a move detrimental for emerging market (EM) economies.

India is a major importer of energy products and a rise in price at this scale has the potential to bring the entire country to a grinding halt. Crude oil remains an important macro variable for India; however, structural improvements over the past decade have significantly reduced the economy’s sensitivity to oil price shocks. Oil imports as a share of GDP have declined from ~8.5% to ~4.8%, reflecting faster overall economic growth, improved energy efficiency and the gradual shift toward cleaner fuels and alternative energy sources.

India has also diversified its energy imports significantly away from the Middle East in favor of Russia. India’s external dynamics today are far more robust compared to previous cycles. A strong services export surplus, lower dependency on Oil and diversified trade partnerships provide a natural buffer to the current account. US$10/barrel increase in Crude Oil widens Current Account Deficit (CAD)^ by ~35 bps.

Amid all this geopolitical turmoil INR has taken a severe beating. Persistent capital outflows, fear of sky-high inflation due to rising crude prices has pushed the INR to the extreme corner – breaching the 95 mark for the first time against the USD. FY26 has been the worst in a decade for INR.

India’s economy is exposed to crude oil and energy related price fluctuations, given the higher dependency of Indian households, restaurants, hotels, automotive vehicles and other segments on LPG and LNG. Unfortunately, India is also a net importer. Had it been a net exporter – it could have been benefitted tremendously through this setup. Everything is governed by crude – if the price of this one input increases, price of every other item also increases. It has a ripple effect throughout the economy. However, the risk could be higher if there is a supply constraint of LPG. As of CY25, while 35% of India’s LPG consumption is domestically produced and 65% is imported, nearly 80% of the 35% of the domestic production comes from processed imported crude oil. Hence, the duration of the conflict, extent of disruption to physical flows and signals from major producers on spare capacity remain key. While geopolitical developments could contribute to near-term uncertainties and short-term price corrections, historical experience suggests that domestic oriented economies with strong internal demand tend to demonstrate relative resilience during external shocks.

On the macro front, the US FED has kept the policy rates steady – with indication of one rate cut in the fiscal year. Fitch has increased India’s GDP growth forecast to 7.5% and GST collection has crossed a historic milestone of ₹2 lakh crore mark, even after the rate cuts announced a few months back.

An interesting observation so far has also been Trump’s tendency to scale back and/or offer optimistic statements as soon as the US 10Y Treasury Yields hover in the 4.4%-4.6% range. This zone has become Trump's political red line. Over the past year, 4.4% to 4.6% has emerged as the danger zone, where higher yields threaten rate cuts, loosen fiscal plans, and revive inflation. So, as an investor, this becomes a very important metric to keep an eye on.

The geopolitical shock has triggered a classic risk-off environment across global markets. Developed markets, particularly the US, have shown relative resilience, while EMs have borne the brunt of outflows, reflecting higher sensitivity to global risk sentiment. The correction in Indian equities has broadly mirrored emerging markets in the recent risk-off phase. Notably, India had already underperformed peer EMs through 2025 due to trade concerns and elevated valuations. The recent decline has further compressed India’s valuation premium to EMs, bringing it below historical averages and improving its relative attractiveness. The NIFTY P/E has also come down from its long-term of ~22 to around 19.9 – indicating a good time to enter. However, it is always advisable to enter in a staggered manner with such heightened volatility.

No one can consistently time the market, but that shouldn’t keep one from participating in it. Periods of uncertainty, when fear dominates sentiment, have often proven to be the foundation for long-term wealth creation. Rather than reacting to short-term volatility, focus on the bigger picture. Take a disciplined approach, invest in a staggered manner, and allow time and patience to work in your favour. Stay resilient, stay committed, and let your long-term perspective guide your decisions.

www.pinnaclefinvest.com

mohit@pinnaclefinvest.com

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