The US-Iran war will continue to dictate the market movements in the financial year 2027 (FY27), said Ritesh Taksali, chief investment officer (CIO) at Edelweiss Life Insurance, in an email interview with Ananya Chaudhuri. While the March 2026 quarter earnings are expected to be adversely impacted by ongoing war-related disruptions, the duration and severity of these shocks remain uncertain, he added. Edited excerpts:
Do you think the markets have priced in most of the negatives?
We have been witnessing elevated volatility for over a year. It began with trade-related concerns and was later exacerbated by the West Asia conflict, which triggered a broad-based correction across asset classes. Markets have largely been reacting to global developments rather than domestic macroeconomic fundamentals, and we expect this trend to persist in the financial year 2027 (FY27).
It is difficult to say whether most of the negatives are already priced in, as global events are still evolving. Markets are not yet out of the woods. Market movements will continue to be influenced by factors such as the duration of the ongoing war, its impact on supply chains, oil prices, inflation expectations, and the potential repercussions of geopolitical tensions on corporate earnings.
However, following the recent correction, valuations have become more reasonable. The Nifty 50 is currently trading at around 20 times trailing earnings, which appears attractive from a historical perspective.
How have you changed your portfolio, if at all, so far in 2026? Which sectors have better entry points now?
India is a unique market, with a well-diversified sectoral representation. If the war persists over a longer period, defensive sectors are likely to remain a safe haven for investors. However, any quick resolution could create an opportunity to increase exposure to cyclical sectors such as financials, infrastructure, and consumer discretionary, which have been impacted by recent volatility.
Do you think there is room for small-and midcap stocks (SMIDs) to correct further? Is it better to stick to large-caps?
In the financial year 2026 (FY26), SMIDs did not underperform with respect to large caps, which is usually the case during market correction phases. While large caps corrected by 5 per cent during the fiscal year, midcaps returned 2 per cent. Even SmallCaps didn’t deliver much underperformance vis-à-vis large caps.
However, with the ongoing war situation, earnings of mid- and small-cap companies are likely to be more volatile and sensitive to external disruptions, making them relatively more exposed in the current environment than large caps. In addition, from a valuation perspective, large-caps offer more comfort than SMIDs. So, we continue to prefer large-caps over small and midcaps.
What are your expectations for the Q4FY26 earnings season? What are the key trends to watch?
We will watch out this earnings season for signals on corporate resilience amidst ongoing geopolitical uncertainty. The West Asia conflict continues to act as a tail risk, primarily through elevated crude prices, supply chain disruptions, and potential pressures on exports. These factors are likely to have a direct impact on cost structures, margins, and overall profitability across sectors.
Will markets transition from a valuation-driven rally to an earnings-driven cycle in 2026?
Once the war-related risks subside, market direction will increasingly be determined by the resilience and quality of corporate earnings in the face of global shocks. Companies that have managed to maintain margins, navigate supply chain disruptions, and protect profitability during this period are likely to be rewarded, as the market will focus on earnings quality rather than headline numbers.
While Q4FY26 earnings are expected to be adversely impacted by ongoing war-related disruptions, the duration and severity of these shocks remain uncertain. Until there is greater clarity on how long the conflict will continue, market sentiment and near-term earnings expectations will remain volatile. Once stability returns, the ability of corporates to demonstrate operational resilience and consistent earnings growth will play a pivotal role in driving market performances
Do you think DII flows into equity markets have peaked, at least for now?
Domestic Institutional Investor (DII) flows represent a long-term structural trend in India, driven by the gradual financialisation of household savings. While DII flows have accelerated since 2020, capital markets still constitute a relatively small percentage of total household savings in India. This implies significant room for growth as more households hold equities in their portfolios.
That said, short-term fluctuations in flows are inevitable, particularly during periods of market corrections or muted returns. For instance, the Nifty 50 has delivered negligible returns over the past two years, which has temporarily slowed the pace of inflows. So market volatility may cause intermittent blips, but the long-term trend of rising DII participation reflects the ongoing financialization of savings in India.
Is the best phase for gold and silver over? Outlook for FY27?
The movement in gold and silver prices is likely to be driven largely by inflation dynamics, particularly as concerns around rising inflation have resurfaced due to energy-related supply constraints and evolving central bank actions.