Nomura indicates that despite resilient earnings, Indian stocks could face continued headwinds due to rising crude oil costs, West Asia uncertainties, and AI-related valuation concerns, prompting a cautious outlook for investors.
Nomura says Indian equities may stay under strain even as company earnings continue to hold up, with crude oil, West Asia tensions and questions over the impact of artificial intelligence on technology shares all feeding a more cautious view on valuations.
The brokerage now expects earnings growth, excluding oil and gas companies, to run at about 11% to 12% over the final nine months of the current financial year, before accelerating to around 16% in FY28. But it warned that higher commodity costs could squeeze margins as businesses find it harder to pass on rising input prices to customers. Nomura also said the recent market pullback cannot be explained by oil alone, even though the rise in crude has added to pressure on sentiment.
Saion Mukherjee, managing director and head of India equity research at Nomura, told Business Standard that markets had initially been comforted by a retreat in oil prices and a ceasefire, but the situation changed as the conflict escalated again. He said that if crude remains in the $100 to $110 a barrel range, earnings cuts become more likely, while the broader rise in uncertainty is already showing up in lower valuation multiples. Nomura said the effect of crude climbing from roughly $70 a barrel before the war to around $90 had so far been manageable because oil marketing companies, and to some extent the government through lower excise duty, had absorbed part of the shock. It added that sustained prices above $100 would bring much more pressure, either by squeezing refiners’ margins or forcing higher retail fuel prices.
The call is consistent with Nomura’s earlier downgrade of Indian equities to neutral from overweight in April, when it cited elevated oil, weaker domestic inflows and concerns over India’s position in the artificial intelligence cycle. In March, the firm also cut its December 2026 Nifty 50 target by 15% to 24,900, warning that sustained oil strength could trim FY27 consensus earnings by as much as 10% to 15%. For now, Nomura’s March 2027 Nifty target stands at 25,900, implying about 13% upside from current levels, though the brokerage said that forecast was made before the latest escalation in West Asia and carries a degree of uncertainty. It expects investors to remain selective, with valuation comfort becoming more important even if profits stay resilient.
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