Weak Monsoon, Crude Prices May Test India Inc Earnings

A weak monsoon can quietly enter your portfolio through the kitchen first.

Tomato prices rise, milk bills pinch, and suddenly the market starts worrying about company profits. That is the chain investors often miss.

Sanjay Chawla, chief investment officer for equity at Baroda BNP Paribas Mutual Fund, has put that link back in focus. He says Indian markets now depend on two simple things, crude oil prices and corporate earnings.

Crude oil still holds the market

Chawla says the end of the US-Iran conflict could give markets some relief. Traders usually cheer when war risk cools, especially when oil supplies look safer.

But the relief may not last by itself. India imports most of its crude oil, so higher prices hurt quickly. They push up the import bill and pressure the rupee.

That matters to ordinary households too. A weaker rupee can make imported goods costlier. Costlier crude can feed into transport, logistics, and eventually grocery prices.

For investors, the first signal will come from energy prices. If crude settles lower, markets may breathe easier. If it stays high, companies will face pressure on margins.

The Bombay Stock Exchange’s Sensex and the National Stock Exchange’s Nifty 50 do not move only on mood. They move on earnings. If companies sell more and protect profits, indices can recover. If costs rise faster than sales, the market gets nervous.

Chawla’s view is simple enough. The market may celebrate peace, but it will stay with profits.

Monsoon risk hits earnings

The monsoon is not just a farming story. It is also an inflation story, a rates story, and an earnings story.

A poor monsoon usually hurts food supply. That can push up food inflation, which forms a large part of India’s consumer price index. In plain English, it means household budgets get squeezed.

When families spend more on food, they often cut other spending. That can hurt companies selling consumer goods, entry-level cars, two-wheelers, apparel, and small appliances.

Chawla says a near-normal monsoon remains important for India’s earnings growth. He remains confident on the longer story, but sees the rains as a clear condition.

This is where the RBI enters the picture. If inflation rises, the central bank may find it harder to cut rates. It may even face pressure to keep policy tight.

Higher rates affect daily life in direct ways. Home loan borrowers wait longer for EMI relief. Small businesses pay more for working capital. Young investors see fixed deposits look more attractive again.

Markets dislike this mix. Higher inflation, a wider current account deficit, and slower growth usually make foreign investors cautious. Chawla says foreign portfolio investors may hesitate when the macro picture weakens.

Domestic investors have kept buying through mutual funds. But the market has not delivered easy returns over the past year. That creates the classic SIP question. Why continue when the reward feels delayed?

SIP patience faces a test

Chawla’s answer rests on discipline. He argues that long-term wealth comes from sticking to asset allocation and financial goals.

That sounds boring, but boring often works in investing. Systematic investment plans reduce the need to guess market tops and bottoms. They also force investors to buy during weak phases.

The hard part is emotional. A retail investor putting ₹10,000 every month wants to see progress. When the market stays flat, patience starts feeling like foolishness.

But equities rarely give returns in a neat monthly pattern. Five years can include long dull patches. Then a few strong quarters can change the full return profile.

Chawla says equity markets follow earnings over time. If company profits improve, prices usually catch up. If profits disappoint, even popular themes struggle.

This is a useful warning for investors chasing every rally. Liquidity can push prices for a while. Earnings decide whether those prices stay there.

Mid-cap and small-cap stocks show this tension clearly. Chawla says large caps have remained steady. Mid-caps have done better in many periods. Small-caps suffered earlier because earnings stayed weak and valuations became stretched.

He sees early signs of small-cap earnings recovery for the March 2026 quarter. But he adds an important caveat. Those numbers do not yet reflect the impact of the war.

The real test may come in the first half of FY27. That is when investors will see whether smaller companies can handle cost shocks, demand pressure, and tighter money.

For retail investors, this means one thing. Do not confuse recent outperformance with safety. Smaller stocks can rise fast, but they can fall just as sharply.

Defence becomes a long story

One sector Chawla highlights is defence. He sees it as a multi-year growth theme, helped by rising defence budgets across countries.

This makes sense in the current global climate. Governments are spending more on security, manufacturing capacity, equipment, and supply chains. Indian defence companies want a bigger share of that order book.

But investors should not mistake growth for cheapness. Chawla says defence is not a classic value play because valuations are not exactly low.

That is the key point. A good sector can still become an expensive investment. If prices already assume years of strong growth, companies must execute almost perfectly.

Execution means delivering orders on time, managing costs, and winning overseas contracts. It also means turning policy support into actual revenue and profit.

The market often loves clean stories. Defence has nationalism, government orders, export hopes, and long-term visibility. That makes it powerful, but also crowded.

Chawla says the broader market now sits in a value zone. But value needs a trigger. Cheap stocks can remain cheap if earnings do not recover.

He expects the market to start looking beyond FY27 and price in FY28 earnings over the next few months. That is how markets work. They often move before the actual numbers arrive.

For now, investors also need balance. Chawla says gold and debt should remain part of portfolios. Gold has already had a strong run, so chasing it blindly may not help.

The bigger lesson is not to swing fully from equity to gold, or from small-caps to defence. Portfolios need different assets for different market conditions.

For ordinary investors, this market is asking for calm rather than heroics. Watch crude, watch the rains, watch earnings, and keep your risk honest. The next big market move may not begin on Dalal Street. It may begin with oil tankers, monsoon clouds, and the monthly grocery bill.