Bleak Outlook! Nomura sets Nifty target at 23,784, signalling just 2.5% upside in 2025

Stock market outlook: Global brokerage firm Nomura has shared a subdued outlook for the Indian stock market in 2025, setting a December-end Nifty target of 23,784. This represents a modest 2.5 per cent upside from the last close. Citing high valuations, earnings growth risks, and global uncertainties, Nomura advised investors to stay highly “selective” and bet on stocks and/or sectors with relative valuation comfort.

Market Projections: Base, Bear, and Bull Scenarios

Nomura’s base case scenario pegs the December 2025 Nifty target at 23,784, assigning an 18.5x multiple to its December 2026 earnings estimate, which is 5 per cent lower than consensus expectations. 

In its bear case, the brokerage estimates a Nifty target of 21,856, implying a 5.6 per cent downside, based on a 17x multiple. Conversely, the bull case target of 25,712 suggests an 11 per cent upside from current levels.

The brokerage expects stock market returns to range from -8 per cent to +9 per cent over the next year, with the Nifty trading at 19.4x one-year forward consensus earnings—slightly above its pre-Covid average of 17.7x.

Sectoral Preferences

Nomura remains overweight on Financials, Consumer Staples, Oil & Gas, Pharma, Telecom, Power, Internet, and Real Estate. It is neutral on IT Services and Infrastructure while holding an underweight stance on Consumer Discretionary, Autos, Capital Goods, Defence, Cement, Hospitals, and Metals.

Key Drivers Behind Muted Outlook

1. Global Uncertainty

Nomura notes a mixed global economic outlook. The United States is expected to record robust GDP growth of 2.8 per cent in 2024, reducing expectations of aggressive rate cuts by the Federal Reserve. In contrast, China faces headwinds from structural property market issues, geopolitical tensions, and potential disruptions from higher US tariffs. Additionally, while Japan’s recovery continues, the Eurozone is projected to slow.

2. Slowing Indian Economy

India’s economic growth is expected to remain moderate. While GDP growth showed signs of recovery following a weak 5.4 per cent expansion in Q2FY25, Nomura anticipates further downside surprises relative to consensus expectations. Policy rate cuts of up to 100 basis points are projected for 2025.

3. Corporate Earnings Slowdown

Earnings growth among Indian corporates has slowed, with BSE 200 companies reporting a modest 4.5 per cent year-on-year increase in H1FY25. Nomura expects this trend to persist in the second half, driven by declines in key sectors such as Banks, NBFCs, Autos, Cement, Oil & Gas, and Capital Goods.

The brokerage highlights that corporate earnings, which grew at a compounded annual growth rate (CAGR) of 23.5 per cent from FY19 to FY24, have likely peaked, with the earnings-to-GDP ratio touching 12.2 per cent in FY24. However, growth is expected to recover, with earnings projected to rise by 17.4 per cent in FY26 and 15.3 per cent in FY27, led by Banks, Oil & Gas, IT Services, Autos, and Power.

4. Weakening FII and DII Flows

Nomura predicts subdued foreign institutional investor (FII) flows due to high valuations, slowing earnings growth, and a stronger US dollar. Domestic institutional investor (DII) flows may also weaken, as sustained low market returns could drive investors toward safer alternatives like fixed deposits. Historically, equity inflows into mutual funds have been strongly correlated with market returns relative to fixed deposit rates.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.