Indian equities could remain under pressure despite a healthy earnings trajectory, as the markets witness elevated crude prices, geopolitical uncertainty and concerns over the longer-term impact of artificial intelligence on technology companies, according to Nomura.
Nomura expects earnings growth excluding oil and gas to be in the 11-12 per cent range over the remaining nine months of the current financial year, before rising to around 16 per cent in FY28. However, higher commodity prices could put pressure on corporate margins as companies’ ability to absorb higher input costs diminishes.
Oil prices, while a risk, do not by themselves explain the extent of the market correction, Nomura said. It estimates that the impact of crude rising from around $70 a barrel before the war to $90 remains relatively contained, with oil marketing companies and, to some extent, the government, through lower excise duty, absorbing the impact. A sustained level above $100 would create greater pressure, either through lower OMC margins or higher retail prices.
“Till August, things seemed to be going fine—oil did retract, there was a ceasefire and now we are confused as the war has escalated. If oil sticks around $100-110 in the foreseeable future, I think we will see earnings cut. If you see the situation around geopolitics—there is another uncertainty. Uncertainty level being highest is reflected in lower valuation. So we are dealing with issues on both these fronts,” said Saion Mukherjee, Managing Director and Head of India Equity Research at Nomura.
The brokerage said higher oil and commodity prices had so far seen limited pass-through to consumers, while companies had absorbed part of the increase in input costs. However, these buffers could wear off, particularly if crude remains elevated for a prolonged period. Nomura said sustained crude prices of $100-110 a barrel could result in earnings cuts.
Nomura’s March 2027 Nifty target stands at 25,900, implying about 13 per cent return from current levels. The brokerage, however, acknowledged uncertainty around the target, as the estimates were made after the start of the West Asia war.
Nomura said investors were increasingly scrutinising valuations amid technology disruption and geopolitical risks. It expects lower valuations to persist even as earnings remain healthy and seeks greater selectivity in stocks, with valuation comfort becoming more important.
