Even before the conflict, Nomura said India had struggled to outperform within the region as an AI “have-not” market. However, with elevated oil and energy prices and continued momentum in the tech cycle, the brokerage believes Indian equities may continue to lag regional peers. It has recommended a shift towards Korean equities, especially after the roughly 15% decline since the conflict began, as well as MSCI China equities, where it remains overweight.
The brokerage said the possibility of prolonged disruption in energy supplies could keep oil and energy prices higher for longer, posing risks to earnings and valuations. Since the onset of the Iran conflict, Nomura has consistently highlighted the vulnerability of Indian equities to a scenario of extended geopolitical tensions and elevated crude prices.
While recent optimism around a possible end to the conflict has reduced extreme downside risks, Nomura remains cautious that continued disruption to oil flows through the Strait of Hormuz could sustain higher energy prices beyond earlier expectations. Analysts view India’s economy as among the most exposed to rising energy costs, and noted that the MSCI India index has a significant share of companies likely to be adversely affected by higher commodity prices.
Nomura also flagged signs of a slowdown in domestic equity flows, which have historically acted as a cushion against sustained foreign selling. Foreign investors have net sold around $61.2 billion worth of Indian equities in the secondary market since end-September 2024.
India-focused offshore funds and ETFs have also seen consistent outflows. In contrast, domestic retail investors had provided support, investing nearly $60 billion into equity-focused funds through SIPs and lump sum routes. However, with market returns remaining subdued, the brokerage cautioned that incremental domestic participation may ease. While SIP flows have stayed resilient, lump sum investments have seen net outflows in four of the past five months.
These factors, Nomura said, could exert further pressure on India’s valuation multiples. The MSCI India index is currently trading at 18.9x forward P/E, representing a roughly 55% premium to Asia ex-Japan valuations, with consensus earnings growth estimates of 15–18% for 2026–2027.As a result, Nomura has slashed Nifty target for December 2026 to Rs 24,900, a sharp 15% cut from its initial target of 29,300 it dished out last year. Further, analysts have cautioned that the 50-share index could fall further after already tanking 11% since the onset of the war on February 28.
Nomura has joined the likes of Goldman Sachs and UBS in downgrading Indian equities in its latest note.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)