Nomura on Monday reduced its December 2026 target for the Nifty 50 by 15%, bringing the forecast down to 24,900 from 29,300. The downgrade follows a surge in Brent crude above $100 per barrel after an unprecedented halt in tanker traffic through the Strait of Hormuz, a development the bank says could shave up to 15% off corporate earnings.
In its baseline scenario, Nomura models a 7.5% reduction in FY27 consensus earnings and assumes a lower price-to-earnings multiple of 18.5x, down from 21x. The brokerage also published alternative outcomes: a bear-case Nifty level of 21,000 and a bull-case Nifty of 29,100.
The Nifty has already dropped 8% over the past two weeks, a decline the brokerage notes has only two analogues over the last decade - the March 2020 Covid-19 sell-off and the 2022 market shock tied to the Russia-Ukraine conflict.
Analyst Saion Mukherjee highlighted the outsized economic importance of the Strait of Hormuz compared with Russian energy flows. "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%," Mukherjee said. "Unlike the unprecedented closure of the SoH, the Russian supplies largely remained intact."
The strait normally handles 20-21 million barrels per day, which Nomura equates to roughly 26% of maritime oil trade. For India, the waterway is a critical artery: 43% of the country's 4.9 million barrels per day of crude imports transit the route.
Natural gas flows are also concentrated through the strait. Nomura states that 63% of India’s LNG imports - amounting to 2.2 billion cubic feet per day - move via the corridor. In a material development, Qatar Energy, a supplier to India under an 8.5 million tonne per annum contract, has declared force majeure and stopped exports.
Nomura quantified the macroeconomic consequence of rising oil: every $10 per barrel increase in crude prices directly expands India’s trade deficit by more than $18 billion, or about 0.5% of GDP. With crude roughly $30 per barrel higher than pre-war levels, the combined oil and gas price shock has added about $60 billion a year to the trade gap, according to the brokerage.
The economics team at Nomura has lifted its FY27 consumer price index forecast to 4.5% from 3.8%, a move the bank says effectively precludes near-term monetary easing.
To describe how the fiscal and price burden might be allocated, Nomura set out a three-tier framework. Oil companies would absorb higher costs up to $80 per barrel. Between $80 and $90, the government would be expected to trim excise duties, though Nomura cautions that cuts will likely be capped at 10 Indian rupees per litre because of fiscal limits - a smaller relief than the 13-16 rupees per litre reductions implemented in 2021-22. If prices rise beyond $90, consumers would face higher retail fuel prices directly.
The report notes immediate strains in fuel-related markets: LPG shortages have emerged, with imports accounting for 70% of domestic consumption. The government has resorted to invoking the Essential Commodities Act and is rationing natural gas to priority sectors.
On valuation, the Nifty was trading at 17.8x one-year forward earnings, near but not yet at the Russia-Ukraine trough of 16.8x, leaving Nomura to suggest there could be another 5% downside in valuations. Foreign institutional investors have already shown substantial withdrawal, with net secondary market outflows of $30 billion in FY25 and $14.5 billion so far in FY26.
Despite the caution, Mukherjee offered a constructive note for long-term investors: "A correction beyond 5% from current levels should present a buying opportunity from a long-term perspective."
Sector preferences through the expected downturn were also detailed. Nomura prefers utilities, coal, pharma and telecom, while adopting a bearish stance on real estate.
Context and implications
The brokerage’s revisions capture a chain of market effects emanating from an acute supply shock in a strategically vital shipping lane. The simultaneous impact on crude and LNG flows underpins the firm’s higher inflation outlook and the expectation that fiscal and corporate earnings pressures will reverberate across trade balances and equity valuations.
What remains uncertain
- How long exports such as those from Qatar Energy will remain halted, and the duration of the strait disruption.
- The extent to which the government will be willing or able to trim excise duties beyond the capped 10 rupees per litre, given fiscal constraints.
- The speed at which foreign investor outflows may moderate if global and regional risk factors change.