Nomura Adjusts Nifty 50 Target#

Nomura has revised its target for the Nifty 50 index, lowering it by 15% to 24,900 from 29,300. This adjustment comes as the brokerage warns of a possible 15% decline in corporate earnings due to a spike in oil prices, which have surged past $100 per barrel following significant disruptions in shipments through the Strait of Hormuz.

Impact of Oil Prices on Earnings#

The firm's base scenario anticipates a 7.5% reduction in consensus earnings estimates for FY27, using a price-to-earnings (P/E) ratio of 18.5, down from 21. In its more pessimistic outlook, the Nifty could drop to 21,000, while a more optimistic scenario sees it reaching 29,100. Recently, the Nifty has experienced an 8% decline over two weeks, a drop that has only been seen during major events like the Covid-19 pandemic and the Russia-Ukraine war.

Geopolitical Concerns and Trade Deficits#

Analyst Saion Mukherjee highlighted that the current geopolitical situation is particularly troubling, as the Strait of Hormuz accounts for 20-25% of global oil and liquefied natural gas (LNG) trade. In contrast, Russian supplies contribute around 8-10%. The strait is vital, carrying 20-21 million barrels of oil daily, which represents about 26% of maritime oil trade. Notably, India relies on this waterway for 43% of its crude oil imports and 63% of its LNG imports.

Economic Outlook and Government Response#

Nomura has raised its forecast for the Consumer Price Index (CPI) for FY27 to 4.5% from 3.8%, indicating that near-term monetary easing is unlikely. The brokerage also outlined how the burden of rising oil prices will be shared: oil companies will absorb costs up to $80 per barrel, the government may cut excise duties between $80-90, and consumers will face higher prices beyond $90. Additionally, LPG shortages are already occurring, prompting the government to ration natural gas to priority sectors.

With foreign institutional investors (FIIs) recording significant outflows, Mukherjee noted that a further correction of 5% could present a long-term buying opportunity. Nomura currently favors sectors such as utilities, coal, pharmaceuticals, and telecom while adopting a bearish stance on real estate.