Nomura has downgraded Indian equities to ‘neutral’ from ‘overweight’, citing rising risks from elevated oil prices amid ongoing geopolitical tensions in the West Asia, a potential slowdown in domestic inflows, and concerns around India’s weak positioning in the artificial intelligence (AI) landscape.
The brokerage said prolonged disruptions to energy supplies through the Strait of Hormuz could keep oil prices elevated for longer than previously expected, posing a significant headwind to India’s economy and corporate earnings.
According to Nomura, India remains among the most vulnerable economies in Asia to sustained high energy prices due to its heavy reliance on imports.
“Rising/elevated oil/commodity prices have historically been a key source of vulnerability for India equities, and this dynamic is once again becoming a significant headwind for Indian equities,” wrote Chetan Seth, Asia Pacific-Equity Strategist, Nomura, in a note dated April 1.
The global brokerage has recommended that investors switch to South Korea and China, where it maintains an ‘overweight’ stance.
Nomura also noted that Indian equities have underperformed regional peers, particularly as global investors gravitate towards markets more directly linked to the ongoing AI-led technology cycle. Seth said these concerns continue to linger.
“First, even before the war, investors appeared to be concerned about AI and its implications for India’s demographic dividend, consumption outlook and structural story. While we think it is still too early to draw definitive conclusions, these concerns can still weigh on investor sentiment unless proven otherwise,” he said, terming India an “AI have-not” market.
Foreign portfolio investors (FPIs) have remained persistent sellers, offloading around $61 billion worth of Indian equities since late 2024. Domestic investors have so far cushioned the impact through systematic investment plan (SIP) inflows.
However, Nomura has warned that incremental participation could moderate if market returns remain subdued.
Valuations, too, remain a concern, the brokerage said.
The MSCI India index trades at about 18.9 times forward earnings — a premium of 55 per cent to Asia ex-Japan peers — even as earnings estimates have yet to fully factor in potential downside risks from higher energy prices.
Last month, Nomura’s India strategist lowered the December 2026 Nifty target to 24,900 from 29,300, citing risks to earnings growth estimates.
