Daily Voice: India better placed to absorb oil shocks despite Middle East tensions, says Carnelian’s Swati Khemani

Swati Khemani is the Founder of Carnelian Capital

• Crude may stay volatile amid Middle East tensions
• India is better placed to absorb shocks
• Remains highly bullish on banks, CDMO, consumption, manufacturing

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According to Swati Khemani, Founder of Carnelian Capital, crude oil may remain volatile as long as tensions in the Middle East persist.

She noted that, as seen during the Russia–Ukraine conflict, India managed its energy supplies pragmatically. Overall, India is relatively better positioned to absorb such shocks, she said in an interview with Moneycontrol.

Khemani remains highly bullish on banks, CDMO, consumption, and manufacturing.

“Select pharma exporters, capital goods companies with strong order books, and well-capitalised private financials may see a rerating as earnings visibility strengthens,” she added.

Amid the war-like situation in the Middle East, do you believe defence spending will ramp up globally over the next decade?

Major economies are already spending heavily — the US at around 3.4% of GDP, Russia at around 7%, China at around 2%. Post-COVID, we've seen multiple conflicts — Ukraine-Russia, Israel-Iran — which have fundamentally shifted how governments think about defence readiness.

India too has stepped up — our defence budget for FY26 is Rs 6.81 lakh crore, about 1.9% of GDP. But given our neighbourhood — two nuclear-armed adversaries — we believe we need to get to 2.5% of GDP. The direction is very clear from our Government: more spending, more indigenisation, more private sector participation.

Do you believe the Middle East conflict will deepen further?

Geopolitical conflicts rarely follow predictable timelines. As an investors, we don't predict geopolitics; we prepare for scenarios. We ensure our portfolios are resilient to prolonged uncertainty, while staying alert to opportunities that emerge when sentiment overshoots fundamentals.

Do you expect oil prices to remain elevated?

Crude may remain volatile as long as Middle East tensions persist. For now, the US allowing India to continue buying Russian oil for a month to manage supply provides some relief. India has been purchasing Russian crude at discounted prices to meet its oil requirements.

As seen during the Russia-Ukraine conflict, the country managed its energy supplies pragmatically. Overall, India is relatively better positioned to absorb such shocks.

Do you see any reasons for economic growth to face greater risks in the short term, or do you believe growth will remain strong this year and next?

We don’t see our economic growth story to face any greater risk. Our economy is well repaired in last 10 years. Structurally, India is in a strong position. Whether you look at fiscal health, corporate balance sheets or household leverage, things are far more stable than before.

Regulatory changes and cleaner systems have also reduced risks like excessive leverage or sudden margin funding crises. Now with rate cuts, GST rationalisation, a liquidity surplus, a manufacturing push, and improving credit growth, we expect growth to pick up across sectors going forward.

Despite short-term risks such as the Middle East conflict, what kind of market returns do you still expect in the current calendar year?

Earnings expectations were trimmed during 2025 amid global uncertainty and tariff concerns. However, earnings did not contract; they merely moderated. We are already witnessing early signs of recovery. I view this more as a reset than a structural slowdown.

From our analysis, FY27 presents a clearer runway for earnings improvement with valuations no longer stretched and interest rates easing, the earnings cycle appears poised for gradual acceleration This year should be better than last calendar year gone by.

How have you seen women’s participation in the equity markets increase significantly in India over the past few years?

Surely women participation has increased on structural basis. Post-2020 saw a meaningful surge in women's participation in Indian capital markets. SEBI and NSE data showed women account for roughly 20-25% of new demat account openings in recent years, up from historically lower levels. Women now hold 33% of mutual fund Assets Under Management (AUM) and represent 25% of all investors. Key drivers include increased financial literacy, digital adoption, and a rising workforce participation rate of over 41%.

What sectors or investment themes do you think investors should consider for long-term wealth creation, especially after recent correction?

We remain highly bullish on Banks, CDMO, Consumption, and Manufacturing. Select pharma exporters, capital goods companies with strong order books, and well-capitalised private financials may see rerating as earnings visibility strengthens.