Manish Sonthalia flags 12–13% earnings reset as global shock clouds FY27 outlook

Manish Sonthalia, CIO of Emkay Investment Managers, warns that a war-led supply and inflation shock is forcing a reset in earnings expectations to 12–13%, with 2026-27 (FY27) at risk of turning into a washout year for markets.

The ongoing geopolitical tensions, particularly around Iran, are creating a multi-layered disruption, from supply chain breakdowns to rising energy prices, which could eventually spill over into growth and demand. “It’s a supply shock, an inflation shock… which will see into growth shock and demand reset,” he said, likening the situation to COVID-like external disruptions.

While the near-term outlook remains uncertain, Sonthalia believes markets may begin to look beyond FY27 weakness and price in a more normalised 2027-28 (FY28), where earnings growth could recover to around 15%. However, the trajectory will depend heavily on how long the conflict persists and whether disruptions deepen.

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Despite these risks, valuations are turning supportive. Benchmark indices are now trading closer to 17–18 times earnings, levels last seen during COVID, suggesting that much of the downside may already be priced in. “We are closer to the bottom,” Sonthalia noted, adding that swift recoveries often follow sharp pullbacks once clarity emerges.

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From a strategy perspective, he highlights pockets of resilience. Financials, defence, power, renewables, and premium consumption are expected to hold up better amid volatility, while technology stocks are emerging as value plays after a sharp correction. IT companies, he pointed out, are still delivering 10–12% earnings growth with healthy cash flows, indicating mispricing.



On the flip side, sectors like travel, airlines, and real estate may face near-term pressure due to rising costs and demand uncertainty, although their long-term outlook remains intact.

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