Groww Mutual Fund’s Anupam Tiwari says sustained crude prices could pressure inflation, government finances, consumption and corporate margins, making earnings recovery the key trigger for a durable equity-market uptrend

High crude oil prices could emerge as the biggest risk to corporate earnings in FY27 and FY28, according to Anupam Tiwari, Head of Equities at Groww Mutual Fund.

Tiwari said that while strong domestic liquidity has provided an important cushion for Indian equities, liquidity alone cannot sustain a prolonged market uptrend if corporate earnings fail to meet expectations. With geopolitical tensions in West Asia adding uncertainty to the global energy market, India's dependence on imported crude makes oil prices a particularly important variable for the domestic economy.

A sustained increase in crude prices could have a broad impact, affecting inflation, the fiscal position, consumption and corporate margins. If elevated energy costs persist, the resulting pressure could delay the broader recovery in earnings and limit the upside potential for equities.

Earnings Recovery Remains Critical for Equities

Indian equities have delivered relatively muted returns despite continued domestic liquidity and strong participation through systematic investment plans (SIPs).

According to Tiwari, there have been some early signs of improvement in earnings over the past few quarters. However, the recovery remains uneven, and the market needs a broader improvement in corporate profitability before a sustained upward move can be expected.

The September 2026 quarter, or Q2FY27 earnings season, will therefore be closely watched by investors.

A meaningful improvement across sectors could strengthen market sentiment, while another round of earnings downgrades could make investors more cautious, particularly in segments where valuations remain elevated.

Why Crude Oil Is the Biggest Risk

India is heavily dependent on imported energy, making crude prices a major macroeconomic variable.

A sustained rise in oil prices can increase input and transportation costs for businesses while simultaneously putting pressure on household purchasing power. Companies may attempt to pass higher costs on to consumers, but weak demand can limit their ability to do so.

This creates a potential squeeze on margins.

Higher oil prices can also increase India's import bill and put pressure on the current account and the rupee. A weaker currency can, in turn, make imported commodities more expensive, creating an additional inflationary pressure.

For investors, the concern is therefore not simply the price of crude itself, but its wider impact on the economy and corporate profitability.

Consumption Could Face Pressure

Higher energy prices can indirectly affect consumer spending.

When households spend more on fuel, transportation and other essential expenses, disposable income available for discretionary purchases can decline. If this continues for an extended period, sectors dependent on discretionary consumption could face slower demand.

Tiwari believes the combination of weaker consumption and higher inflation could become a broader earnings headwind if crude remains elevated.

This makes the trajectory of oil prices particularly important for consumer-facing companies as well as the wider economic recovery.

Fiscal Position Also Comes Under Pressure

Elevated crude prices can create challenges for the government's fiscal position.

Higher energy costs can influence subsidies, taxation, fuel pricing and overall expenditure priorities. At the same time, weaker consumption and corporate profitability could affect tax collections.

Tiwari also highlighted the possibility of moderation in government capital expenditure if sustained high energy prices create additional fiscal pressures.

Government capex has become an important driver of investment activity and economic growth. Any prolonged slowdown could therefore have implications for sectors linked to infrastructure, construction and capital goods.

Corporate Margins Face a Double Challenge

Companies across multiple sectors could face higher costs if crude prices remain elevated.

Transportation, logistics, chemicals, aviation, paints, tyres and other energy-intensive businesses can be particularly sensitive to changes in crude and related input prices.

Companies with strong pricing power may be able to pass some of these costs on to customers. However, businesses operating in highly competitive markets may have limited flexibility, resulting in margin compression.

The extent of the impact will depend on the duration of high oil prices and the ability of individual companies to protect profitability.

Large-Caps May Not Be as Cheap as They Appear

Tiwari also cautioned against assuming that large-cap stocks are broadly inexpensive after the recent market movements.

He pointed to increasing competition from new entrants, relatively lower investments in research and development in some businesses and intensifying competition among established companies as factors that could put pressure on valuations.

This suggests that investors may need to distinguish between companies with strong competitive advantages and businesses where growth expectations have already been reflected in share prices.

Growth Versus Value Requires a Flexible Approach

On the growth-versus-value debate, Tiwari said the market should not be viewed through a single factor.

Different companies operate under different business conditions, and their valuations depend on growth potential, profitability, competitive advantages, balance-sheet strength and market expectations.

An optimisation-based approach that considers multiple factors could therefore be more useful than taking a blanket view that either growth or value stocks will outperform.

SIP Flows Likely to Remain Relatively Resilient

Despite the possibility of subdued equity returns, Tiwari expects SIP flows to show resilience because systematic investing has increasingly become part of regular financial planning for Indian households.

Periods of weak returns can also allow disciplined investors to accumulate more units at lower valuations, provided their investment horizon and asset allocation remain unchanged.

However, a prolonged period of poor equity performance could eventually affect investor sentiment and lead to some moderation in flows.

In such an environment, diversified categories such as multi-asset and hybrid funds could attract greater investor interest because they provide exposure across asset classes and can potentially reduce portfolio volatility.

Mid- and Small-Caps Require Stock Selection

Mid- and small-cap stocks have delivered strong returns over the past several years, but Tiwari believes investors should avoid treating the segment as a single homogeneous category.

The two segments contain companies with widely different business models, balance sheets, earnings profiles and growth prospects.

While valuation concerns remain in parts of the market, opportunities could continue to exist through active stock selection.

The key challenge for investors will be separating companies with sustainable earnings growth from those where expectations have already become excessive.

Elevated Bond Yields Remain Important

Indian equities are also likely to remain sensitive to elevated bond yields.

Higher yields can make fixed-income investments relatively more attractive while increasing the discount rate applied to future corporate earnings. This can put greater pressure on high-valuation companies whose investment cases depend heavily on long-term growth expectations.

However, Tiwari believes the relationship between bond yields and equities is not static.

If elevated yields persist for a sufficiently long period, markets may gradually adjust to the new environment. The sensitivity to further incremental increases could then diminish.

Still, equities are unlikely to become completely immune to bond yields. Investors will need to watch both the level and direction of yields, as well as the underlying reason for changes.

Structural Themes Still Offer Opportunities

Manufacturing, defence, consumption and artificial intelligence remain important structural themes for India's long-term growth story.

However, Tiwari cautioned that a strong structural theme does not automatically make every company within that theme an attractive investment.

As a theme becomes popular, investors may price in future growth well before the expected earnings materialise. This can create a disconnect between business fundamentals and valuations.

Investors therefore need to assess individual companies rather than simply buying into a popular theme.

Diversification Becomes More Important

For retail investors, an oversized allocation to thematic funds can create concentration and volatility risks.

Tiwari believes diversified products such as multi-cap and multi-asset allocation funds could be more appropriate for many investors because they provide exposure across companies, sectors and asset classes.

The approach can help investors participate in structural growth themes without making their overall portfolio excessively dependent on one sector or investment narrative.

What Investors Should Watch in Q2FY27

As the September-quarter earnings season unfolds, investors are likely to focus on several indicators:

• Revenue and earnings growth

• Management earnings guidance

• Impact of crude prices on input costs

• Operating margin trends

• Consumer demand

• Government capital expenditure

• Interest rates and bond yields

• Rupee movement

• Foreign investor flows

• Valuation comfort across market segments

The interaction between these factors will determine whether the current earnings recovery can broaden across the market.

Market Outlook

The message from Groww Mutual Fund's Anupam Tiwari is clear: liquidity can support markets for a period, but sustainable returns ultimately require sustainable earnings growth.

For India, crude oil has become the most important external risk to that earnings recovery. If oil remains elevated for an extended period, higher inflation, pressure on the fiscal position, weaker consumption and tighter corporate margins could combine to weigh on earnings expectations.

At the same time, India's long-term economic growth story remains intact, while SIP participation and domestic investment flows provide structural support to equities.

The investment environment therefore calls for greater selectivity rather than a blanket bullish or bearish approach. Investors may need to prioritise companies with strong balance sheets, sustainable earnings, pricing power and reasonable valuations while maintaining adequate diversification.

For the broader market, the next major test is whether earnings growth can finally catch up with valuations—and whether crude oil prices allow that recovery to continue.