Key insights
- Nomura cut its Nifty target due to the oil shock from potential Strait of Hormuz disruptions, projecting a significant downside to corporate earnings. Higher oil prices will widen India's trade deficit and raise inflation, likely delaying monetary easing. While the direct impact is on India, sustained global oil price increases can negatively affect US equities by increasing inflation and reducing consumer spending.
Investing.com -- Nomura cut its December 2026 Nifty 50 target by 15% to 24,900 from 29,300 on Monday, warning of up to 15% downside to corporate earnings as Brent crude surged past $100 per barrel following an unprecedented halt in shipments through the Strait of Hormuz.
The brokerage’s base case assumes a 7.5% reduction in FY27 consensus earnings estimates at a price-to-earnings multiple of 18.5x, down from 21x. Its bear case puts the Nifty at 21,000; its bull case at 29,100.
The Nifty has already fallen 8% in two weeks - a decline with only two precedents in a decade: Covid-19 in March 2020 and the Russia-Ukraine war in 2022.
"The current geopolitical escalation is more concerning as the SoH accounts for 20-25% of global trade in oil and LNG vs Russian supplies of ~8-10%," analyst Saion Mukherjee said. "Unlike the unprecedented closure of the SoH, the Russian supplies largely remained intact."
The strait carries 20-21 million barrels per day, roughly 26% of maritime oil trade. India sources 43% of its 4.9 million barrels per day of crude imports through the waterway.
On gas, 63% of India’s LNG imports - 2.2 billion cubic feet per day - transit the strait. Qatar Energy, which supplies India under an 8.5 million tonne per annum contract, has declared force majeure and halted exports.
Every $10 per barrel rise in crude directly widens India’s trade deficit by more than $18 billion, or 0.5% of GDP, Nomura said.
With oil up approximately $30 per barrel from pre-war levels, the combined oil and gas price impact adds roughly $60 billion annually to the trade deficit.
Nomura’s economics team raised its FY27 CPI forecast to 4.5% from 3.8%, effectively ruling out near-term monetary easing.
Nomura outlined a three-tier burden split. Oil companies absorb the impact up to $80 per barrel.
Between $80-90, the government is expected to cut excise duties, though Nomura said cuts will likely be capped at 10 Indian rupees per litre given fiscal constraints - smaller than the 13-16 rupees per litre reductions seen in 2021-22. Beyond $90, consumers bear the cost through higher retail fuel prices.
LPG shortages have already emerged, with import dependence at 70% of domestic consumption.
The government has invoked the Essential Commodities Act, rationing natural gas to priority sectors.
At 17.8x one-year forward earnings, the Nifty is approaching but has not yet reached its Russia-Ukraine trough of 16.8x, leaving room for another 5% fall, Nomura said.
FIIs have recorded net secondary market outflows of $30 billion in FY25 and $14.5 billion so far in FY26.
"A correction beyond 5% from current levels should present a buying opportunity from a long-term perspective," Mukherjee added.
Nomura favours utilities, coal, pharma and telecom through the downturn, and turned bearish on real estate.