US-Iran peace deal: What should be the stock market strategy? Sectors and stocks to watch out

The Indian stock market extended its bull run to the fourth consecutive trading session on Wednesday, as investors cheered the US-Iran peace deal and the fall in crude oil prices. The benchmark Sensex has jumped more than 3,200 points, and the Nifty 50 has rallied nearly 4% in four sessions.

The United States and Iran have agreed upon a preliminary agreement to end the war in the Middle East and reopen the Strait of Hormuz, while a final peace deal will be signed on Friday. Once formalised, the US-Iran peace deal is expected to allow Iranian oil to flow in the markets.

Crude oil prices have reacted sharply to the development, with Brent crude falling below $80 per barrel after having approached $120 per barrel during the peak of the US-Iran war.

Why the US-Iran Peace Deal Is Positive for India

The decline in crude oil prices following the US-Iran peace deal is significantly positive for India, particularly in terms of its external account, domestic liquidity conditions, and easing supply chain pressures.

The easing of geopolitical tensions has boosted investor sentiment, helping the Nifty 50 reclaim the 24,000 mark. For India, a major importer of crude oil, lower energy prices represent a substantial macroeconomic tailwind.

According to Emkay Global Financial Services, Brent crude stabilizing in the $75-80 per barrel range could deliver a meaningful improvement in India's current account deficit (CAD). Lower crude oil prices also reduce concerns around supply-chain disruptions and raw material shortages across industries while helping avert a potential inflation shock.

Additionally, an improved external account position is expected to support domestic liquidity and enhance monetary policy transmission.

Emkay expects the positive macro environment to trigger a multi-asset rally, forecasting the rupee to appreciate to 93 per US dollar, the 10-year government bond yield to decline to 6.75%, and the 12-month Treasury bill yield to ease to 5.5%.

The brokerage believes the consumption sector could emerge as one of the biggest beneficiaries, extending the momentum seen in the fourth quarter of CY2025 following GST reductions.

Earnings Outlook Remains Strong

India Inc.'s earnings remained resilient throughout the period of geopolitical uncertainty. The Nifty 50 delivered a healthy 4% year-on-year profit growth in Q4FY26 despite elevated energy prices and commodity inflation pressures.

With crude oil prices now moderating, Emkay expects FY27 earnings forecasts to remain intact, projecting Nifty earnings-per-share (EPS) growth of nearly 16%, potentially making FY27 the strongest earnings year in the past three years.

Financials and consumption-oriented sectors are expected to lead the earnings recovery, with the end of the conflict acting as an additional positive catalyst.

Nifty 50 Target

Emkay Global has maintained its March 2027 Nifty 50 target of 29,000, valuing the index at 19.6 times one-year forward earnings, broadly in line with its long-term average.

The brokerage noted that the recent market correction has brought valuations back to more reasonable levels. The Nifty is currently trading at 17.8 times one-year forward earnings, below its five-year long-term average of 19.6 times.

Market breadth also remains supportive, with nearly 48% of stocks in Emkay's coverage universe trading below their long-term average valuations.

The brokerage expects FY27 EPS growth of 15.7%, although it cautioned that near-term risks could arise from any renewed volatility in oil prices or geopolitical developments.

Stock Market Strategy After the US-Iran Peace Deal

According to Emkay Global, the immediate beneficiaries of the peace agreement and lower crude oil prices are likely to be Oil Marketing Companies (OMCs), transportation companies, cement manufacturers, select banks and NBFCs, and companies with significant exposure to Middle East infrastructure projects.

The brokerage highlighted that stocks such as Larsen & Toubro (L&T), which could benefit from the revival of project activity in the Middle East, stand to gain from the improved environment.

On the other hand, the investment case for upstream energy companies has weakened following the decline in oil prices. Defensive sectors such as FMCG, pharmaceuticals, and information technology may also underperform as investors rotate toward cyclical and growth-oriented sectors amid improving risk sentiment.

Emkay's Preferred Picks

To capitalize on the expected market recovery, Emkay's preferred stock ideas include - Oil Marketing Companies (OMCs), which continue to trade below their long-term average price-to-book valuations, Larsen & Toubro (L&T), Shriram Finance, InterGlobe Aviation and Tata Motors Passenger Vehicles, which had previously come under pressure due to concerns over higher fuel prices.

The brokerage believes these companies are well-positioned to benefit from lower energy costs, improving economic activity, and a recovery in investor risk appetite.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.