India's recent stock market selloff has been similar to regional markets such as Indonesia and Thailand. Nomura India attributed this correction to market fatigue after the strong run, when expectations were set high. Incrementally, economic and earnings growth were below the expectations, resulting in valuation multiple for Nifty moving lower to 19 times one-year forward earnings against 21.3 times at the peak in September 2024, it said.
Nomura India said the India-specific macro narrative is stable with no material structural risks in the near term. It sees Nifty trading in a valuation range of 17-20 times on one-year-forward earnings basis. That said, there are two key reasons that may push the market to drift towards the lower end of the valuation range, it warned.
"First, somewhat slower economic growth in the near term. Nomura's Economics team assumes a slower recovery with lower-than-consensus GDP growth in FY26 and a faster growth in FY27. A slowdown in investment growth is the key risk, in our view. Second, the rise in equity risk premium from global trade conflicts and macro uncertainty," it said.
For now, equity markets globally have fared well despite news flow on tariffs from the US.
Nomura's 2025 Nifty target stands at 23,784, based on 18.5 times December 2026 Nifty EPS of Rs 1,286. Its Nifty EPS estimate is 1.5 per cent below the current consensus estimate.
"We estimate the December 2025 Nifty range at 21,800-25,700 (based on 17.0-20 times Dec 2026 earnings), which implies a return of minus 5 per cent to plus 12 per cent from current levels," it said.
The foreign brokerage said Nifty consensus earnings estimates for December 2026 have been revised lower by 3.5 per cent. Nomura, which had expected potential consensus earnings cuts of 3-6 per cent for FY26-27, said an additional low- to mid-single-digit percentage earnings cut remains a possibility.
Stock market strategy The brokerage said it is highly selective and is avoiding richly-valued stocks. It is overweight (OW) on financials, FMCG, oil and gas, telecom, pharma, power, internet, and real estate. It is underweight on consumer discretionary, autos, capital goods, cement, hospitals, and metals.
"In our preferred stocks portfolio, we add Axis Bank, and remove NAM, Hyundai Motor India Ltd, and GE Vernova T&D India Ltd. In the least preferred stocks, we add Voltas and ABB India, and remove MSIL and Havells India," Nomura said.
Among financial stocks, SBI, ICICI Bank, Axis Bank, Federal Bank, Bajaj Finance and SBI Life are among Nomura's most preferred picks. In the FMCG sector, it likes Marico, ITC and Hindustan Unilever. Voltas is its preferred pick in the consumer durables. It likes M&M and Uno Minda in auto sector, Larsen & Loubro in infrastructure sector, and Infosys, Coforge and Wipro in IT sector.
In the oil & gas sector, Nomura likes Reliance Industries and HPCL. Lupin and Dr Reddy's Labs are among its pharma picks, JSW Energy and Tata Power its power sector picks, Macrotech its realty pick while JSTL is Nomura's metals sector pick.
Nomura does expect a cyclical recovery in economic growth from the lows of Q2FY25 on the back of a pick-up in government expenditure growth and more accommodative central bank policy. However, it believes there are headwinds for the corporate earnings-to-GDP ratio to improve in the near term, which could limit a material earnings growth outperformance to economic growth in the near term.
From the peak in September 2024, Nifty is down 16 per cent in dollar terms, with midcap (down 21 per cent) and smallcap (down 23 per cent) indices correcting even more.