Citi, Nomura Reduce Nifty Targets by Up to 15% Amid Rising US-Iran Tensions

Financial Report: India Nifty and Sensex Affected by West Asia Conflict

Market Update

On March 16, 2024, Nomura, a leading brokerage firm, revised its target for the Nifty for December 2026 downward by 15% to 24,900 from its previous estimate of 29,300. This reduction is attributed to concerns over consensus earnings estimates, which are expected to be negatively impacted by the ongoing war in West Asia.

Earnings Estimates and Risks

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The ongoing conflict in West Asia poses significant risks to India's economic growth and corporate earnings. Citi Research has also revised its year-end target for the Nifty downward to 27,000 from 28,500, citing rising growth and corporate earnings risks. Elevated oil prices and supply disruptions are expected to have a negative impact on India's economy, with Citi estimating a potential:

• 20-30 basis points reduction in India's growth in FY27
• 50-75 basis points increase in inflation
• Widening of the fiscal deficit by about 10 basis points
• Addition of USD 25 billion to the current account deficit

Monetary Policy and Economic Outlook

The Reserve Bank of India (RBI) is expected to remain on hold in April, with a possible shift in policy stance towards growth if fiscal measures mitigate inflationary pressures. The ongoing conflict has triggered volatility across global markets, with the Nifty and Sensex experiencing a 10% correction from their record highs and a decline of about 8% since the start of the conflict.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Sector Exposure

The conflict is shifting from a pure energy "price" shock to a broader "quantity" disruption, affecting supplies of LPG, LNG, fertilisers, petrochemicals, and aluminium. This is expected to raise input costs and disrupt availability across various sectors, including:

• Fertilisers and petrochemicals, which are highly exposed due to India's dependence on imports from the Middle East.