Expert view: Risk-reward appears favourable from a medium-term perspective, says Equirus Asset Management's MD, CIO
AI Summary
Ashutosh Tiwari, MD and CIO of Equirus Asset Management, suggests that the risk-reward scenario for investors is favorable as the peak of the US-Iran conflict appears to be behind us, reducing the likelihood of prolonged military engagement. He notes that the trajectory of the conflict is closely tied to oil prices, which have recently retraced sharply, and emphasizes that as long as oil prices remain stable, broader escalations are unlikely. However, he warns that any sustained rise in energy prices could pressure all parties towards a diplomatic resolution.
Expert view: Ashutosh Tiwari, MD and CIO- Public Equities, Equirus Asset Management, believes the risk-reward appears favourable from a medium-term perspective. He emphasises that attempting to wait for complete clarity or stability can often prove counterproductive, as markets tend to discount improving fundamentals well before they become obvious. In an interview with Mint, Tiwari said the peak of the US-Iran conflict is behind us, as neither side has a strong incentive to pursue a prolonged escalation. Edited excerpts:
We believe that peak of conflict is behind, as neither side has a strong incentive to pursue a prolonged escalation, given the significant economic and geopolitical costs involved.
One of the key lessons from the Russia–Ukraine conflict has been that drawn-out wars are expensive, difficult to sustain, and increasingly shaped by new technologies.
The evolution of warfare, particularly the widespread use of drones, has materially altered the cost equation. While many countries possess sophisticated missile-defence systems, intercepting low-cost drones with highly expensive air-defence assets is neither efficient nor sustainable over an extended period.
This dynamic acts as a natural constraint on prolonged military engagement.
The United States also has a limited appetite for a long conflict in the region, particularly given its strategic interests and alliances across the Middle East.
This is reflected in financial markets, where crude oil prices have retraced sharply from their recent peaks—far more than many investors had anticipated.
Going forward, we believe the trajectory of the conflict will be closely linked to oil prices.
As long as crude oil prices remain relatively benign, occasional ceasefire violations and localised tensions may persist, but the incentives for a broader escalation remain limited.
Conversely, a sustained rise in energy prices would create economic pressures on all stakeholders and increase the urgency for diplomatic resolution.
Iran, in particular, faces important economic constraints. Its major trading partners, especially China, have little interest in a prolonged conflict that drives energy costs higher and disrupts trade flows.
Notably, China's reduction in oil purchases during the recent escalation helped moderate crude prices and contributed to market stabilisation.
While such measures may not be sustained indefinitely, they underscore the broader international incentive to prevent the conflict from spiralling further.
Historically, the Nifty 50 has tended to peak around 25 times trailing P/E, and by September 2024, valuations had reached those levels.
At the same time, nominal GDP growth moderated sharply, declining from approximately 14% and 12% in FY23 and FY24 to about 10% and 9% in FY25 and FY26, respectively.
Original Article
Published on Livemint