Quarterly review April’2026 – War and its implications
The past six weeks have reminded investors of a familiar but uncomfortable truth: geopolitics can reprice risk overnight. As the Iran conflict drags on, markets are looking for signals on how long the disruption could last. The current market reaction seems to suggest a near-term resolution and a gradual move toward normalcy. Markets are not pricing in a prolonged conflict.
World consumes about 100mn bpd of oil, about 20% of global oil supplies are from Middle East. Due to closure of strait of Hormuz, almost 6-7mn bpd of oil is stuck and not reaching the market. As a result, oil prices are up 50%. Increase in oil prices is a tax on global economy. Pre-war the global GDP growth was expected to be 2.9% in 2026. As a rule of thumb, a 10% increase in oil price can have a 0.1% impact on global GDP. Further blockade of the strait of Hormuz for 3-6 months could result in stagflation which can be very damaging for global growth.
Market action not severe, emerging markets in Asia have suffered the most
Source: ELC, Bloomberg
12mths forward oil prices indicates normalisation to US$76/bbl
![[Chart]](https://www.eastlanecapital.com/wp-content/uploads/2026/04/chart.png)
Source: ELC, Bloomberg
High oil prices are negative for India
India imports about 1.8 billion barrels of crude oil each year, or roughly 5 million barrels per day, with nearly half of these imports coming from the Middle East. As a result, every $10/barrel increase in crude oil prices can raise India’s gross import bill by about $18 billion annually. India’s oil trade deficit was around $120 billion in FY25; this could rise to about $170 billion in FY26 at an average oil price of $85/barrel, and to around $200 billion if average oil prices move to $100/barrel on a sustained basis.
The overall impact on India’s external account would be much larger than the higher oil bill alone. It would also reflect possible trade disruption in the conflict-hit region, pressure on the exchange rate, higher fertiliser import costs, slowdown in remittances from the GCC, weaker consumer sentiment, and risk-off foreign capital outflows. Taken together, these could materially widen the balance of payments deficit.
Impact of oil price increase under various scenarios
| Avg Crude Oil Price ($/bbl) | $70 | $85 | $100 |
| CAD/GDP % | 1.2 | 2.2 | 2.5 |
| BOP Deficit ($ bn) | (11) | (70) | (82) |
| USD/INR | 92-94 | 92-96 | 92-98 |
| CPI Inflation | 4.1 | 4.7 | 5.0-5.5 |
| Real GDP growth (%) | 7.0 | 6.5 | 6.0 |
| Repo Rate hike | Neutral | Neutral | Likely in 2H27 |
Source: Kotak institutional equities
A sustained oil price of US$85 or above can impact GDP growth by 0.5%
The recent excise duty cuts by INR 10 protects the consumer up to US$80-85/bbl. If the oil prices sustain US$80-85/bbl, the price increase will have to be passed on to the consumer.
Given the vulnerability of India to rise in oil price, the market sold off by 15% in USD terms. Levered sectors like real estate and financials suffered the most.
Defensives outperform
Source: ELC, BBG
| Consensus expects earnings growth of 15% | Prolonged war will see downgrades |
Source: ELC, MOSL
Nifty Valuations close to 10yr average
Source: ELC, MOSL
Given the current environment there are near-term risk to earnings. Valuation compression may accompany the severity of earnings downgrades. We as fundamental analysts can only weigh probability of events likely to unfold, do scenario analysis and assess what is reflected in the stock price.
In this note, we have a closer look at the banks as they have seen a sharp sell-off post the outbreak of the war. We will try to assess the structural and cyclical factors and its impact on valuations for banks.
Banks – Looking at the cyclical and structural drivers and what is reflected in the price
Rise in credit penetration is the structural growth story for financial services in India. Credit growth has been ahead of nominal GDP. Private sector banks have been gaining market share from public sector banks and hence growth was higher than system average. While the structural growth story remains intact, lets look at the cyclical factors and the valuations to determine if there is upside potential in these stocks.
| Bank Credit: India Still Underpenetrated | PSU have defended loan market share since FY24 |
Source: ELC, Bloomberg
Growth – cyclical factors may impact the near-term outlook
Financial sector is geared to the growth in economy and slowdown in GDP growth impacts the growth for the sector. Over the last 12 months the public sector growth was higher than that of private sector. We believe this is cyclical and the longer-term market share growth story by private sector remains intact. Management’s strategy and execution capabilities have a significant bearing on growth and its sustainability, and each stock will have to be looked upon on its individual merit.
| Industry | Mar-10 | Mar-15 | Mar-20 | Dec-25 | 5YR cagr | 10YR cagr | 15YR cagr |
| Bank Credit (bn) | 31 | 61 | 104 | 203 | 12% | 12% | 13% |
| GDP | 65 | 125 | 201 | 357 | 11% | 10% | 11% |
| Credit/GDP | 48% | 49% | 52% | 57% | |||
| Agriculture | 4 | 8 | 13 | 25 | 11% | 11% | 12% |
| MSME | 3 | 5 | 5 | 14 | 19% | 11% | 10% |
| Large Corporates | 10 | 22 | 27 | 30 | 2% | 3% | 7% |
| Services | 7 | 15 | 29 | 57 | 12% | 13% | 14% |
| Retail | 6 | 12 | 29 | 66 | 15% | 18% | 17% |
| – Housing | 3 | 6 | 15 | 33 | 15% | 17% | 16% |
| – Vehicle | 1 | 1 | 3 | 7 | 16% | 18% | 17% |
Source: ELC, RBI
Rising interest rates are generally positive for the bank margins
Interest rate movement have a cyclical implication for margins. A steep yield curve, i.e. lower short-term rates and higher long-term rates are good for margins. Current scenario may see the yield curve steepening. Structurally a low-cost deposit franchise is the biggest competitive advantage for any financial institution. A low-cost deposit franchise takes time to build; it allows banks to earn good profits without taking significant risk on the asset side. At system level, growth in low-cost deposits may be slowing as household savings shift toward capital markets.
Low-cost deposit growth slowing for the system
System credit cost is well placed at the moment. This reflects the strength of a bank’s underwriting culture, which is the most important structural differentiator for any financial institution.
Cyclically, high leverage in the system and slowing growth lead to higher credit costs. Currently, the banking system is operating at a low level of credit costs. However, corporate balance sheets are not highly leveraged, so despite concerns around slower growth, a sharp rise in credit costs appears unlikely in the near term.
| NIM have structurally improved over the last decade | Credit costs may rise but unlikely to hit past levels |
Source: ELC, Bernstein
Finally, Return on assets captures the overall efficiency of a bank, with private sector banks typically generating ROAs of 1.7% to 2.0%, vs. 1.0% for public sector banks.
| ROA – FY25 | HDFC | ICICI | Kotak | Axis | Federal | City Union | SBI | Canara Bk | PNB |
| Net Interest Income | 3.3% | 4.1% | 4.4% | 3.5% | 2.9% | 3.1% | 2.6% | 2.3% | 2.5% |
| Non-interest Income | 1.2% | 1.4% | 1.8% | 1.6% | 1.2% | 1.2% | 0.8% | 1.4% | 1.0% |
| Total Income | 4.5% | 5.5% | 6.1% | 5.2% | 4.1% | 4.3% | 3.4% | 3.7% | 3.5% |
| Operating costs | 1.8% | 2.1% | 2.9% | 2.4% | 2.2% | 2.1% | 1.8% | 1.8% | 1.9% |
| PPOP | 2.7% | 3.4% | 3.2% | 2.7% | 1.9% | 2.2% | 1.6% | 1.9% | 1.6% |
| Provisions | 0.3% | 0.2% | 0.5% | 0.5% | 0.2% | 0.4% | 0.2% | 0.6% | 0.1% |
| ROA % | 1.8% | 2.4% | 2.0% | 1.7% | 1.2% | 1.5% | 1.0% | 1.1% | 1.0% |
| Leverage (x) | 8.0x | 7.5x | 6.0x | 9.3x | 10.5x | 8.3x | 15.7x | 17.0x | 14.5x |
| ROE % | 14.3% | 17.8% | 12.1% | 15.9% | 13.0% | 12.6% | 15.1% | 18.2% | 14.2% |
Source: ELC
Valuation methodology for banks
Banks are best valued using the Gordon Growth framework, as valuation depends on the return they generate on book capital vs. cost of equity. The framework is driven by — normalized ROE, long-term growth, and cost of equity. This helps assess not just the strength of growth, but whether that growth is achieved at attractive and sustainable returns. Justified P/B = (ROE – g) / (Cost of Equity – g)
What are the stock price discounting?
ICICI Bank, Kotak, HDFC Bank, and Axis are trading at 1.2-1.5x FY28 core book (ex-subsidiary value). Current prices factors in 9-12% growth for 10 years vs. 14-15% pre-correction.
| Justified P/B target multiple | ICICI | HDFC | Kotak | Axis | SBI |
| Current ROA | 2.2% | 1.8% | 2.0% | 1.6% | 1.0% |
| Current leverage | 7.0x | 7.5x | 6.0x | 9.0x | 14.5x |
| Current ROE | 15.4% | 13.5% | 12.0% | 14.4% | 14.5% |
| Normalized ROE – Standalone | 15.5% | 13.5% | 15.0% | 12.0% | 8.0% |
| Cost of Equity | 11.0% | 11.0% | 11.0% | 11.5% | 11.0% |
| Initial High Growth Period (yrs) | 10 | 10 | 15 | 15 | 10 |
| Terminal Growth | 5.0% | 5.0% | 5.0% | 5.0% | 5.0% |
| Dividend Payout | 20.0% | 25.0% | 5.0% | 5.0% | 20.0% |
| Dividend Payout (Long Term) | 50.0% | 50.0% | 40.0% | 50.0% | 50.0% |
| Current P/BV Multiple – FY28 | 1.6x | 1.3x | 1.4x | 1.2x | 1.1x |
| Implied Growth at current price | 10.5% | 9.0% | 12.5% | 12.5% | 14.0% |
Note: Normalized ROE is adjusted for excess leverage in Axis and SBI, and for excess capital in Kotak
COE is higher for Axis to reflect its lower capital buffers.
What is the right valuation? We believe, over the medium term, system credit should grow modestly ahead of nominal GDP, with private banks continuing to gain market share and compound at higher sustainable profitability.
| Target Price – 1FY | ICICI | HDFC | Kotak | Axis | SBI |
| Core BVPS (INR) | 568 | 450 | 155 | 813 | 600 |
| Target Core PBV (x) – Bank | 2.2x | 1.8x | 2.0x | 1.5x | 1.3x |
| Core bank value (INR) | 1,250 | 809 | 309 | 1,219 | 781 |
| Value of Subsidiaries | 278 | 163 | 127 | 185 | 318 |
| Total SOTP Value (INR) | 1,529 | 973 | 436 | 1,404 | 1,099 |
| % Upside / (downside) | 27% | 31% | 23% | 19% | 10% |
| Implied P/E – Core Bank | 15x | 13x | 15x | 10x | 8x |
Structural growth moderation impacts the valuation, HDFC Bank is a good example of this thesis. As growth moderated from 20% to 14-15% the valuations de-rated from a PE of 20-25x to 14-15x.
Market has adjusted the multiples to current growth reality
Source: ELC
Notwithstanding the near-term volatility, we believe that the leading private sector banks can sustain 14-15% growth and remain invested in ICICI Bank and HDFC Bank.
To conclude, while the trajectory of the conflict remains uncertain and macro volatility may persist, market dislocations are also creating selective opportunities. From a bottom-up perspective, the current pricing of private sector banks already reflects a conservative growth and risk outlook, offering a favourable risk-reward for long-term investors.
If you have any questions or concerns, please feel free to reach out.
East Lane Fund performance
The performance represents overall performance of PMS as per SEBI guidelines. Since we do not have a model portfolio approach, performance for individual accounts will vary.
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Source: ELC
At East Lane, we remain committed to our investment philosophy of investing in companies with a long runway ahead but would only own them when available at reasonable valuations.
If you have any questions regarding the performance of your portfolio with us or any other subject that you think we can help, please feel free to reach out to us for the same.