The Indian stock market has seen a sharp downturn recently, as the raging US-Iran war, persisting FII outflows, and other factors have pushed the Nifty down over 10% this year so far. After the sharp correction, Nomura sees Nifty rising nearly 11% from current levels to hit 25,900 by March 2027.
The international brokerage in its latest ‘India Equity Strategy’ report said that it has raised its Nifty target from its earlier 24,900 estimate for December 2026. It highlighted that despite the downturn since the onset of the US-Iran war, Dalal Street has performed better than it had fallen during the beginning of the Russia-Ukraine war in 2022.
The optimism this time, according to Nomura, is being driven by expectations that the West Asia conflict will end and that the strait of Hormuz will open up, driving oil prices lower, a very strong AI theme and supportive central banks. "In absolute terms, Indian equities have also held well, though they have underperformed many global indices. Nifty is down 10% since the start of the conflict, a fall lower than that witnessed in 2022. However, the broader market reflected in Nifty mid- and small-cap indices recorded positive returns during this conflict. FIIs sustained intense selling on concerns of a cyclical impact from higher oil prices, the structural impact of AI and no material correction in valuations," the international brokerage further said.
Nifty is trading at 18.1x one-year-forward earnings, and is at the lower end of the trading range of 18-20x that held up over the past four years, Nomura said, adding that the market valuation factors in the above concerns, to a large extent. “We expect that a drop in oil prices and increased traction for IT services from implementation of AI by enterprises will be key catalysts to watch out for through rest of FY27F,” it added.
Nomura’s bottom-up, stock-specific approach to portfolio construction
Nomura said that it has a “bottom-up, stock-specific approach to portfolio construction”. The key themes for its sector stance include preference for exporters that have established credentials, such as auto components, pharmaceuticals, and power equipment. Strong investments in data centers and power infrastructure, expectations from Indian IT services to address opportunities around AI implementation in the medium term, expectations of a growth slowdown and margin pressure for the consumption segment and limited government support to the industry given fiscal constraints are also among the themes.
The international brokerage is constructive on auto ancillaries, engineering or manufacturing and pharmaceuticals. It is also positive on financials and IT services, supported by what it sees as attractive valuations. However, it is cautious on consumption.
“We change our sector stance on capital goods from Bearish to Bullish primarily due to the strength of demand from power equipment, which could negate the impact of higher costs. We change our stance on consumer discretionary/durables and autos to Bearish from Bullish and Neutral, respectively, as we expect a slowdown in earnings growth. We also change our stance on cement from Bullish to Neutral on earnings risks from cost pressure,” it said.
Strong earnings growth
Nomura evaluated the Q4 earnings for 256 companies, whose aggregate PAT growth stood at 18% year-on-year (YoY), higher than consensus estimates. The energy sector (oil & gas, power, coal and power equipment) recorded strong growth, accounting for approximately 60% of the aggregate earnings beat, as per its assessment. The strong earnings from lending financials (banks and NBFCs), which contributed 18% of aggregate earnings, also supported earnings growth in the quarter.
For most sectors, earnings were ahead of consensus estimates, Nomura said, adding that Q4 earnings growth was supported by strong underlying economic recovery following cuts in taxes and favorable monetary policy. Sales growth (excluding financials, commodities) was strong at 15%, though EBITDA growth at 6% was somewhat muted, implying pressure on EBITDA margin, it added.
US-Iran war, high oil prices dampen outlook
Despite the strong Q4 earnings, the consensus estimates for FY27 and FY28 have been revised lower. Since the start of the West Asia war in end of February 2026, aggregate earnings for FY27 and FY28 have been revised lower by 4% and 1%, respectively, Nomura said. “At the start of the conflict, when oil prices increased, we assessed corporate earnings risk of around 7.5% for FY27. On a high FY26 base, consensus now estimates an 11% earnings CAGR over FY26-28F (Nifty earnings ~10% CAGR over FY26-28). This earnings growth is similar to nominal GDP growth, implying that the earnings-to-GDP ratio will stabilize at the current elevated levels. In the past, we had argued that significant and sustained outperformance of earnings growth to nominal GDP growth was unlikely in the medium term (Outlook 2026 ). Thus, the moderation of earnings growth is aligned with our expectations. Depending on how oil prices move, additional risk to current FY27/28 estimates can’t be ruled out, in our view,” it added.
Also read: Motilal Oswal highlights broad-based beat on estimates, lists 6 sectors that exceeded expectations
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
