Even after the Nifty 50 fell more than 5% last week, there could be more pain in store for India's benchmark index, with Nomura becoming the latest brokerage to lower its target price on the index, citing rising oil prices that may weigh heavily on the economy at large.
In its latest note, the brokerage firm has lowered its December target price for Nifty to 24,900. This comes shortly after Citi downgraded its year-end target for Nifty from 28,500 to 27,000, implying an upside of around 17%.
Nomura, though, is far less bullish than Citi and has only assigned a price target of 24,900, which implies an upside of just 7% from current levels of 23,200.
The downgrade comes on the back of an "unprecedented" disruption at the Strait of Hormuz, which has pushed Brent crude prices above $100 per barrel. Nomura analysts noted that the Strait is responsible for 43% of India's crude oil imports and 63% of its LNG imports.
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"Supply disruptions can adversely impact industrial production as almost all manufacturing industries have linkages to the oil and gas supply chain," the report stated. While the government and oil companies may absorb costs up to $90 per barrel, Nomura warns that any further increase will likely be passed on to consumers, fueling inflation.
The brokerage sees a 10% to 15% risk to consensus earnings estimates for fiscal year 2027 if prices remain elevated. Consequently, it has lowered its valuation multiple for the Nifty to 18.5 times price-to-earnings, down from 21.0.
Despite the gloomy forecast, Nomura suggests the correction could present a long-term buying opportunity if the market drops an additional 5%. The firm remains "constructive" on defensive sectors, including utilities, coal, oil producers, and pharmaceuticals, while advising a bottom-up approach focused on valuation.
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