MC Interview: Narnolia’s Shailendra Kumar warns Gulf tensions could trigger 5% market drop, full‑blown US-Iran war likely

Shailendra Kumar is the Chief Investment Officer at Narnolia Financial Services

• Would not completely rule out risk of a full-blown US–Iran war
• 5% market correction likely if tensions in Gulf region persist without near-term resolution
• Reasonable time to accumulate quality large-cap stocks

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“I would not completely rule out the risk of a full-blown US–Iran war,” said Shailendra Kumar, Chief Investment Officer at Narnolia Financial Services, in an interview with Moneycontrol.

He stated that what makes this moment particularly volatile is that the threshold between calibrated strikes and outright war has already been tested in concrete ways. The US–Israel strike killed senior Iranian leaders — a significant red line has been crossed.

According to him, if tensions in the Gulf region persist without a near-term resolution, a broader market correction of around 5% is a plausible and realistic outcome.

However, he advised that this is a reasonable time to accumulate quality large-cap stocks. “It is worth noting that large-cap Indian equities have already undergone more than 18 months of time correction, bringing valuations to fair and more sustainable levels,” he said.

Do you completely rule out the possibility of a full-blown war between the United States–Israel alliance and Iran, especially given Iran’s retaliation following the massive US–Israel attack?

I would not completely rule out the risk of a full-blown war. History reminds us that many major conflicts were never planned — they escalated beyond anyone's original intent, and the current situation carries that same danger.

What makes this moment particularly volatile is that the threshold between calibrated strikes and outright war has already been tested in concrete ways. The US-Israel strike killed senior Iranian leadership — a significant red line crossed.

Iran has claimed a strike on a US aircraft carrier, which, even if denied by Washington, reflects the dangerous level of confrontation we are witnessing. And with the US confirming American casualties, domestic political pressure on decision-makers becomes a factor that can override strategic restraint.

Do you see a low probability of a major oil and gas supply blockade?

The region is already experiencing a de facto blockade driven by active combat and risk avoidance. Major shipping firms (Maersk, Hapag-Lloyd, MSC) have suspended transits and war-risk insurance premiums are skyrocketing. While the probability of a prolonged, total blockade of the Strait of Hormuz remains low, but the probability of significant, high-impact disruptions is already at 100%.

Do you expect the current market correction to be limited to 1–2 percent from here? What is the probability of a 5 percent or deeper correction?

Valuations offer little cushion at current levels — Nifty at a trailing PE of 22, Nifty 500 at 23.5, and Nifty Mid Small 400 at 30. Should tensions in the Gulf region persist without near-term resolution, a broader market correction of around 5% is a plausible and realistic outcome.

Despite this uncertainty, do you still expect a 10–15 percent market return in 2026?

From current levels, a gain of 10% to 15% by December 2026 for Nifty remains a realistic expectation. Even accounting for the uncertainties arising from the Gulf situation, Nifty earnings over the next four quarters are likely to grow by more than 12%. That implies PE of approximately 19.6 for December 2026 for Nifty — a genuinely attractive valuation level, particularly for large-cap oriented portfolios.

So, while caution is warranted in the mid and small cap space given their stretched valuations, any decline in large caps from here should be seen as a good buying opportunity.

Do you believe this is the right time to accumulate quality stocks, or should investors wait for the situation to settle? Which sectors are likely to attract your attention during the current market decline?

This is a reasonable time to accumulate quality large cap stocks. It is worth noting that large cap Indian equities have already undergone more than 18 months of time correction, bringing valuations to fair and more sustainable levels.

Additionally, a large majority of these companies derive their revenues primarily from the domestic economy, which shows clear signs of improvement. This should translate into a meaningful earnings recovery — from the single digit growth seen in recent quarters to mid-teen levels going forward. Importantly, the quality of earnings across these large caps remains strong, which adds further confidence to the investment case.

Do you expect the US–Iran tensions to impact corporate earnings and economic growth to some extent?

The recent US-Iran conflict does place the Indian economy in a challenging position. India imports approximately 85% of its crude oil requirements, a significant portion of which passes through the Strait of Hormuz. Any prolonged disruption to this supply route would have tangible consequences — putting pressure on the fiscal deficit and weighing on the currency.

That said there are offsetting factors. Domestic food and core inflation remaining at benign levels provides some cushion, and if India can scale up discounted oil imports from Russia, as it has done effectively in the past, it could meaningfully reduce the economic stress from elevated global crude prices.

On the corporate earnings front, select sectors will inevitably feel the impact — particularly those with high energy costs or import dependencies. However, if the conflict remains contained and relatively short-lived, we do not anticipate a material adverse impact on the broader Indian equity indices.

What other challenges do you foresee for equity markets in the year ahead, or do you expect more tailwinds than headwinds as the year progresses?

The current environment is admittedly clouded by uncertainty — the US-Iran conflict and the ongoing debate around AI's economic impact are creating visible headwinds for market sentiment.

However, it would be a mistake to lose sight of the underlying strengths of the Indian economy. Domestic consumption continues to hold up well, and credit growth remains on a healthy trajectory — both of which are powerful tailwinds. Once the immediate reaction to the Gulf situation settles, these fundamental drivers should reassert themselves and support Indian markets through the rest of the year.