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Informist, Thursday, Apr. 2, 2026

MUMBAI – Global brokerage firm Nomura has downgraded Indian equities to 'neutral' from 'overweight', citing growing risks to corporate earnings from high energy prices due to the ongoing conflict in West Asia, coupled with concerns over high valuations. The Indian economy is one of the most vulnerable to high energy prices, the brokerage said, adding that the MSCI India index has the largest share of companies that are likely to be negatively impacted by high commodity prices. 

The brokerage is now concerned that prolonged disruption in energy flows through the Strait of Hormuz could keep energy prices higher for longer than it had initially estimated. "Our base-line assumption is that it might take 2-3 months for oil/energy prices to normalise," Nomura said. India is vulnerable to sustained high energy prices both from economic and earnings standpoints, the brokerage said.  

Nomura also flagged concerns about artificial intelligence-led disruption and slowing domestic fund flows that may further weigh on valuation multiples of Indian equities. The MSCI India index currently trades at 18.9 times the forward price-to-earnings multiple with a 15–18% earnings growth estimated for 2026-27 (Apr-Mar), which is yet to reflect any earnings risk. India currently trades at around 55% premium to Asia ex-Japan valuations, broadly in line with the post-2015 average, Nomura said. The brokerage has set the 2026 year-end target for Nifty 50 at 24900 points in its base case scenario, which assumes a 7.5% reduction in earnings estimates and a 10-15% risk to consensus earnings if oil prices stay higher. 

Even before the West Asia conflict, investors appeared to be concerned about AI and its implications for India's demographic dividend, consumption outlook and structural story, Nomura said. The brokerage believes that, as long as the AI capital expenditure theme continues, "AI have-not" markets like India will need far stronger catalysts to generate outperformance.

The brokerage also pointed out risks of slowing domestic equity flows amid subdued market returns. "With market returns subdued, we are concerned that incremental domestic participation may moderate, undermining this crucial lever of market support. While SIP (systematic investment plan) flows have been resilient, lump-sum flows have sustained net outflows in four out of the past five months," Nomura said. 

Given the baseline assumption that higher energy prices and tech-cycle momentum are likely to continue, the brokerage believes that Indian equities might struggle to outperform in the regional context. It thus recommends investors to switch to Korean equities, particularly after the around 15% decline since the US-Iran war broke out, and as they remain 'overweight' on MSCI China equities.

Meanwhile, a faster-than-expected resolution of the West Asia conflict, the reopening of the Strait of Hormuz, and normalisation of energy flows, could lead to a bounce-back in Indian stocks, Nomura said. However, the sustainability of any rally would depend on how quickly oil prices normalise. If oil prices stay above $90 per barrel, domestic equities may continue to struggle to outperform, Nomura said. Similarly, if the AI capital expenduture cycle slows or reverses, some US hyperscalers have to cut back on capex either due to end-demand concerns or pressure on their stock prices, investors might rotate into underperforming AI "have-not" markets such as India, it said.  End

US$1 = INR 98.08

Reported by Arya S. Biju

Edited by Tanima Banerjee

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