BNP Paribas trimmed its 2026 Nifty target by 11 per cent to 25,500 while flagging multiple macro headwinds stemming from the ongoing geopolitical tensions in West Asia.
The Nifty on Monday closed at 23,843.
While valuations have corrected to near long-term averages, BNP Paribas sees only modest upside of about 7 per cent from current levels, reflecting a more tempered outlook for the remainder of 2026. The brokerage has arrived at the target price by assigning 18.2x multiple to 2027 estimated earnings, lower than 10-year average of 18.6x.
Weaker earnings prospects, subdued foreign investor flows, and rising macroeconomic risks linked to elevated energy prices are the factors contributing to the move.
The recent surge in crude is expected to weigh on India’s current account, fiscal position, and inflation trajectory, potentially dampening consumption and growth momentum, BNP Paribas has said.
After averaging $69 a barrel in 2025, Brent crude prices have hovered around $100 amid the Iran-US war.
BNP Paribas warned that higher oil prices could widen India’s current account deficit (CAD), with every $10 per barrel increase likely to expand the deficit by about 35 basis points. The fiscal position may also come under strain, as potential fuel tax cuts could lead to significant revenue losses for the government.
The report also highlighted emerging structural concerns, including slower growth in IT services and the disruptive impact of artificial intelligence on employment and discretionary consumption.
Although recent economic indicators remain resilient — supported by earlier policy measures such as tax cuts — they have yet to fully reflect the impact of higher energy costs and imported inflation, the brokerage has said.
Historical trends suggest that oil shocks typically lead to earnings downgrades across most sectors, with the impact persisting for several quarters depending on the duration of the price spike, BNP has said.
“Our analysis of three periods of oil price spikes in 2008, 2011, and 2022 reveals that the Indian economy not only gets impacted by higher oil prices, but the extent of impact is directly proportional to the duration of the oil shock. In 2008 and 2022, the oil price spiked and settled quickly and hence the impact on the Indian economy was relatively short-lived, whereas in 2011-2013 the adverse impact lasted longer as oil remained elevated for a longer time. Prolonged periods of high oil prices translate to extended periods of high inflation and elevated bond yields, which in turn affect economic indicators,” Kunal Vora, the head of India Equity Research at BNP Paribas said in the note.
Higher bond yields — now inching towards 7 per cent — are also seen as a drag on equity valuations, limiting the scope for multiple expansion despite recent corrections.
BNP has highlighted that foreign portfolio investor (FPI) sentiment towards Indian equities has weakened amid concerns over high valuations, lack of participation in the global AI-driven rally, and deteriorating macro conditions.
BNP Paribas has turned defensive in its sector stance, favouring segments that are relatively resilient to higher crude prices. It prefers consumer staples, telecom, utilities, and private sector banks, citing their pricing power and earnings stability. IT services have also moved into the preferred list following a sharp correction and currency tailwinds.
On the other hand, the brokerage has turned negative on autos, cement and infrastructure, as rising input costs and potential cuts in government capital expenditure could weigh on profitability and demand.
