Nomura Says Market Fall Signals Deeper India Growth Worries

Indian market decline reflects deeper growth concerns beyond crude shock: Nomura

New Delhi, October 6

"The correction, in our view, reflects deeper structural concerns," Nomura said in its equity strategy report, pointing to growing worries around geopolitical realignment, technological disruption and their implications for India's growth prospects.

The assessment is significant because the latest market fall has unfolded differently from the correction seen earlier this year, even though both episodes were triggered by geopolitical tensions and concerns over crude oil prices.

Indian equities have remained under pressure since early August, when crude oil prices moved above USD 100 per barrel. The Nifty declined about 9 per cent in dollar terms during August-September, after having fallen about 14 per cent during the February-March correction.

However, Nomura said the composition of the latest decline suggests that investors are worried about more than just the oil shock.

During the February-March correction, oil-sensitive and domestic sectors such as oil marketing companies, banks, real estate and automobiles were among the biggest laggards. In the August-September phase, IT services recorded the steepest decline, while non-banking financial companies and consumer staples also underperformed despite relatively resilient earnings. Oil marketing companies, meanwhile, fell less than the Nifty even as crude prices rose further.

"This points to deeper investor concerns about India's long-term growth, driven by geopolitical realignment, technological disruption and policy risk," the report said.

Nomura also said relative growth expectations have shifted in favour of the US, helped by the strength of artificial intelligence-related investment there. The brokerage noted that the two-year earnings compound annual growth rate for the S&P 500 stands at 25 per cent, compared with 13 per cent for its India BSE 200-plus universe.

Higher global bond yields are adding to the pressure. The India-US 10-year yield spread has narrowed to 190 basis points, its lowest in 22 years, creating a less favourable environment for foreign capital flows into India and other emerging markets. Foreign institutional investors have net sold USD 12.5 billion of Indian equities in FY27 so far, according to the report.

Against this backdrop, Nomura cut the valuation multiple it assigns to the Nifty to 17 times one-year forward earnings from 18.5 times and set a March 2027 Nifty target of 24,000.

"We recommend being valuation conscious and avoiding chasing the narrative," Nomura said, adding that investors should favour value and remain selective on growth.

The brokerage said economic activity has so far remained resilient, but the strength is largely being driven by urban and credit-financed demand, while rural demand remains soft. It also warned that elevated crude and commodity prices could put pressure on corporate margins in the coming quarters.

Nomura said consensus expectations of high-teens earnings growth in FY28 assume an easing of geopolitical tensions, lower crude prices and no disruptive rise in interest rates.

"Clearly, these assumptions appear optimistic at this stage," the report said, adding that mid-single-digit cuts to FY28 earnings estimates remain a possibility.

— ANI