US-Iran Tensions Trigger Nifty 50 Target Cuts by Citi and Nomura

Escalating geopolitical tensions stemming from the conflict between the US, Israel and Iran are prompting global brokerage firms to reassess their outlook for Indian equity markets. Both Citi Research and Nomura have lowered their year-end targets for the Nifty 50 index, citing increased risks to economic growth and corporate earnings due to rising oil prices and potential supply disruptions.

Nifty 50 Target Revisions

Nomura has significantly trimmed its year-end forecast for the Nifty 50, reducing the target to 24,900 from a previous estimate of 29,300. Citi has likewise revised its Nifty target downwards, to 27,000 from 28,500. These modern projections represent potential upsides of approximately 7.5% and 17% respectively, from the index’s recent closing level.

Impact of Geopolitical Risks

The current geopolitical escalation is considered more concerning than the Russia-Ukraine conflict due to the strategic importance of the Strait of Hormuz. According to Nomura analyst Saion Mukherjee, the Strait of Hormuz accounts for 20%-25% of global trade in oil and LNG, compared to Russian supplies of 8%-10%. Disruptions to shipments through this critical waterway have already begun, impacting oil and gas supply chains.

India’s Vulnerability

India is particularly vulnerable to these disruptions, heavily relying on imports for crude oil, natural gas, and LPG. The Strait of Hormuz handles around 43% of India’s crude oil imports and nearly 63% of its LNG imports. A sustained disruption could derail India’s economic recovery, fuel inflation, and worsen the current account deficit.

Market Correction and Potential Buying Opportunity

The Indian markets, as represented by the Nifty, have already corrected by 8% over the past two weeks, a level of decline only previously seen during the COVID-19 pandemic in 2020 and the onset of the Russia-Ukraine conflict in 2022. Nomura suggests that a further correction of around 5% is possible in the near term, with minor- and mid-cap stocks facing greater risk. However, analysts at Nomura believe that a correction beyond 5% could present a long-term buying opportunity.

Earnings and FII Flows at Risk

Sustained high energy prices are expected to negatively impact FY27 earnings. If oil prices remain around $100 per barrel, aggregate corporate earnings could be revised downwards by 10-15% compared to current consensus estimates.

Foreign Institutional Investors (FIIs) have been net sellers in the Indian equity market for the past two years, driven by concerns over valuations, the rise of the AI trade (where India is perceived as a net loser), and now, elevated oil prices. Domestic inflows, while resilient, have also shown a slowdown in growth.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times.)