Brace For 5-6% Earnings Cuts, Says Nomura’s Saion Mukherjee; Favours Domestic Plays Over Banks

Nomura has warned that corporate earnings in India Inc. could face downgrades of 5-6% over the next year, as growth struggles to keep pace with nominal gross domestic product.

The brokerage expects Nifty50 earnings to rise broadly in line with nominal GDP growth, seen at around 10% for the financial year 2025, but flagged that recent optimism around earnings momentum was likely overdone.

Nomura’s Nifty 50 target for March 2026 implies limited upside of 6-7% from current levels, with heightened global volatility posing additional risks.

"Earnings growth optimism is misplaced," said Saion Mukherjee, India Equity Strategist and Head of India Research at Nomura. "We are looking at a 5.6% earnings cut in forecasts."

The brokerage noted that while foreign portfolio investors are buying Indian equities, the trend remains vulnerable to swings in global sentiment and the strength of the US dollar. "Flows will remain volatile depending on the US dollar movement and global factors," Mukherjee added, noting the need for caution as external risks persist.

Nomura has adopted a defensive approach, favouring sectors with stronger domestic demand linkages and relatively stable earnings profiles. They remain overweight on select consumption-driven sectors while maintaining a neutral stance on banks, he said.

In the banking, financial services and insurance sector, Nomura sees steady credit growth but limited room for positive earnings surprises. "Banks are not cheap anymore. While credit growth is steady, earnings upgrades are unlikely from here," Mukherjee said.

The brokerage continues to prefer discretionary consumption plays, including automobiles, over export-orientated sectors such as information technology and global cyclicals. Mukherjee said domestic consumption remained a "relatively safe space" compared to sectors that are more exposed to external shocks.

However, Nomura cautioned that even within preferred sectors, expectations for absolute returns should be tempered.

Nomura’s broader message to investors is to moderate return expectations, focus on quality names with strong domestic fundamentals, and prepare for periods of increased market volatility as global risks loom large.