The brokerage has downgraded India to “neutral” from its earlier rating of “overweight” and has also cut its Nifty 50 target for December 2026 to 24,500 from 29,300 earlier.
“Our India strategy team has set the end-2026 Nifty target at 24,900 as its base case, which assumes a 7.5% reduction in earnings estimates and a 10% to 15% risk to consensus earnings, should oil prices stay elevated,” Nomura’s note said.
Nomura has cited the possibility of elevated oil prices due to the ongoing Iran war as the primary trigger behind the downgrade.
Indian equities can struggle to outperform in the regional context given multiple headwinds, ranging from elevated energy prices to the AI capex momentum and the tech cycle, according to Nomura.
As a result, the brokerage has recommended a switch to Korean equities, particularly after the 15% decline since the breakout of the Iran war and MSCI China equities, where they continue to remain “overweight.”
While the market expects that the war will end soon, Nomura does not see the Strait of Hormuz fully reopening swiftly even after the US withdraws. “We are concerned that oil / energy prices might stay elevated longer than we had initially hoped for,” the brokerage said.
In addition to this, Nomura also sees two emerging concerns. First, even before the Iran war, investors were concerned about AI and its implications for India’s demographic dividend, consumption outlook and structural story.
“While we think it is too early to draw definitive conclusions, these concerns can still weigh on investor sentiment unless proven otherwise,” Nomura said.
The brokerage said that it had viewed India as a diversifier in portfolios since the end of last year, treating them as a hedge against any unwinding of AI-tech thematic. However, the rise in oil / energy prices and India’s vulnerability to sustained rise in energy prices makes Nomura’s diversification argument less compelling, according to the note.
Second concern is the slowing domestic flows.
Nomura is also of the opinion that with subdued market returns, they are concerned that the incremental domestic participation may moderate, thereby undermining the crucial lever of market support.
