Daily Voice: Valtrust’s Rahul Bhutoria warns of second leg of market repricing if US-Iran conflict drags on

Rahul Bhutoria is the Director and Co-Founder of Valtrust

• Iran War impact visible in aviation, logistics, paints, chemicals in Q4
• See second leg of repricing if US-Iran conflict extends — driven by fundamentals, not fear
• Focus on RBI April policy commentary for early signals on how central bank reading growth-inflation trade-off

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According to Rahul Bhutoria, the Director and Co-Founder of Valtrust, the market is currently assuming a swift de-escalation. If that assumption proves correct, the fear peak is in.

"If the conflict extends, we'll see a second leg of repricing — not on fear, but on fundamentals," he said in an interview to Moneycontrol.

Further, in case of growth, if oil averages $90+ for an extended period; that combination of fiscal pressure and the limited room for further monetary easing could trim 25–30 bps from growth, he feels.

Hence, he is focussing on the RBI's April policy commentary closely for early signals on how the central bank is reading the growth-inflation trade-off.

Do you think the peak of fear has already been priced in by the market, unless a completely unforeseen incident occurs in Iran?

Markets have partially priced the geopolitical shock, but not the full macro impact. The initial Hormuz disruption triggered a fear premium in oil and a sell-off in risk assets — that knee-jerk move may be largely behind us. What hasn't been fully priced in is the sustained economic consequence if disruption persists: a potential widening in India's current account deficit, rupee pressure, and the inflationary pass-through from elevated crude.

The disruption extends beyond crude oil — approximately 20 percent of global LNG supply transits the same strait, with Qatar alone accounting for a significant share. India's LNG-dependent sectors, including fertilisers, city gas distribution, and industrial users, face a parallel supply and cost risk that the market has not yet fully reflected.

The market is currently assuming a swift de-escalation. If that assumption proves correct, the fear peak is in. If the conflict extends, we'll see a second leg of repricing — not on fear, but on fundamentals.

Do you expect the market to consolidate over the next couple of weeks and move back above record-high levels towards the end of March? Can the market still deliver around 15 percent returns in CY2026?

Consolidation in the near term is the base case. The primary variable now is the trajectory of crude — the monetary cushion available if oil-driven inflation re-accelerates. If Brent settles back below $85 a barrel over the next two weeks, domestic macro drivers — an improving earnings cycle, government capex, and rural consumption recovery — can take over. A return to record highs by end-March is possible but requires the geopolitical risk premium to compress meaningfully.

On 15 percent returns for CY2026: unlikely in the current environment — though one can never say never. The bar is materially higher now. It requires a mid-year earnings recovery, continued strength in domestic flows, sustained FPI re-engagement, and no second-order macro surprises. All four conditions need to hold simultaneously.

Do you think the impact of AI on Indian IT companies will be quite significant and has not yet been fully priced into the stocks?

AI is a near-term disruption risk for Indian IT services and potentially a meaningful growth driver further out — but the narrative is more nuanced than either the bulls or bears acknowledge. The market has priced some risk, but not the eventual upside from AI-led deal flow.

Top-tier firms — TCS, Infosys, and HCL Technologies — are investing heavily in AI capability, yet GenAI revenue contribution remains a fraction of total. The compression in discretionary spend globally, combined with client caution in the wake of US tariff uncertainty, means near-term earnings visibility is low.

Valuations are therefore something we are watching closely. If the sector corrects further, the margin of safety could become compelling, and we would be comfortable gaining exposure through active IT funds, IT ETFs, or selective direct investments.

Importantly, the narrative that AI will dramatically shrink technology employment is being challenged by current data. Demand for AI-skilled professionals has surged over the last few years and companies are paying significant wage premiums for those skills. In many ways, AI is expanding the opportunity set for technology services rather than eliminating it — and Indian IT firms, with their deep engineering talent pools, are well positioned to benefit as enterprise adoption accelerates.

If war-related fears ease sooner rather than later, do you believe the economic growth projections will remain unchanged?

Broadly yes, with a caveat. India's FY26 growth estimate of 6.4–6.7 percent was built on assumptions of crude averaging $70–75 per barrel and a stable current account. A brief disruption — resolved within four weeks — would leave full-year numbers largely intact, with perhaps a 10–15 bps shave at the margin. The risk is a scenario where oil averages $90+ for an extended period; that combination of fiscal pressure and the limited room for further monetary easing could trim 25–30 bps from growth.

Beyond the macro numbers, the corporate-level impact deserves attention. A sustained oil shock cascades through raw material costs and supply chains in ways that compress margins even before topline growth is affected. Sectors with high crude-derivative content in their input baskets — paints, chemicals, FMCG packaging, logistics — will see cost-push pressure that takes multiple quarters to resolve through pricing action or procurement renegotiation. We are watching the RBI's April policy commentary closely for early signals on how the central bank is reading the growth-inflation trade-off.

Do you see any minor impact of the Iran war on Q4 earnings? Which sectors are likely to drive growth?

Q4 impact will be modest but visible — primarily in aviation, logistics, and input-cost sensitive sectors like paints and chemicals. LNG price spikes also merit attention — city gas distribution companies and fertiliser manufacturers with spot LNG exposure could see meaningful input cost pressure if the disruption persists into Q4.

The sectors likely to drive growth are financials (strong credit cycle, NIM resilience), healthcare (domestic formulations and US generics recovery), and energy (upstream companies such as ONGC benefiting from higher realisations, though policy dynamics remain a factor). Domestic consumption plays with limited commodity linkage — select FMCG and QSR names — should also deliver steady numbers.

Do you see attractive valuations in the defence and healthcare segments?

Healthcare, yes — particularly domestic formulations and hospital chains where earnings visibility is high and valuations have corrected to reasonable levels after the recent market drawdown.

Defence is more nuanced. Structural order inflows are strong, but valuations in several names still price in a near-perfect execution scenario. We prefer companies with diversified order books and proven delivery track records over pure-play thematic bets. Selective accumulation makes sense; blanket exposure does not.

Are you fully invested in the market at this point in time?

We are running a slight underweight versus our normal allocation. The short-term geopolitical uncertainty justifies keeping some dry powder — not because we are bearish on India structurally, but because the risk-reward for deploying aggressively today is asymmetric.

Any meaningful correction, particularly in high-quality domestic compounders caught in the broad sell-off, would be an opportunity to close that gap quickly. Patience here is being paid for with optionality.