Nomura warns of further earnings cuts for FY26–27, citing high valuations, limited AI exposure, and lingering US-India tensions as headwinds for equities.
Nomura Flags Earnings Downgrades Ahead
Nomura expects the earnings downgrade cycle in India to continue into FY26 and FY27, citing a combination of corporate risks, elevated valuations, and external headwinds.
- Chetan Seth, Asia-Pacific Equity Strategist at Nomura, stated that the team is factoring in a 4–6% downside in earnings growth, of which 1–2% has already materialised.
- “Probably another 3–4% to go… I haven’t done the proper maths,” Seth remarked candidly, reflecting the ongoing recalibration of forecasts.
This cautious view comes even as macroeconomic fundamentals—like GDP growth, fiscal consolidation, and inflation control—remain relatively strong.
Market Has Underperformed—but Not Enough to Be “Cheap”
Despite recent underperformance relative to global peers, Indian markets have not seen a significant correction, which Nomura sees as a problem.
- The Nifty and Sensex are only ~5% off their September 2024 highs.
- This leaves India looking less compelling on an absolute valuation basis, especially when compared to markets undergoing AI-fueled rallies.
“The market hasn’t corrected meaningfully in price. That’s the issue. It’s still expensive,” said Seth.
US-India Geopolitical Tensions Add to Uncertainty
One key overhang remains strained diplomatic ties between the US and India, which continue to dampen foreign investor sentiment.
- Seth noted that unless relations improve, these tensions could continue to limit portfolio inflows and act as a drag on market confidence.
- A thaw would be “unequivocally positive,” but Nomura cautions against expecting a sudden inflow surge.
Limited AI Exposure a Structural Drawback
Another longer-term limitation for India is its scarcity of investable proxies for the global AI boom, which has driven significant capital into Korea, Taiwan, and China.
- As AI reshapes tech investing patterns, India risks being sidelined from this capital wave.
- Nomura anticipates “drip-drip” FII outflows as investors chase AI-led growth elsewhere in Asia.
Rich Valuations Persist Across Asia
India isn’t alone—Asia’s top four markets, including China, Korea, Taiwan, and India, are all trading at elevated valuation levels, according to Nomura.
- However, high valuations can persist in environments of strong earnings or macro tailwinds.
- The concern is that in India’s case, earnings momentum is fading, weakening the justification for premium pricing.
