Nomura has recently shifted its investment strategy to emphasize a more domestic-centric approach by revising its Nifty target for March 2026 to 24,970. This adjustment reflects a growing optimism toward sectors such as consumption and companies benefiting from the relocation of supply chains. The firm advocates for a careful, bottom-up investment strategy, steering clear of stocks with inflated valuation multiples. They caution that any spike in risk premiums could pose substantial threats to these high-valued stocks.
Top Picks from Nomura’s Portfolio
Nomura’s latest recommendations spotlight several large-cap stocks that investors might consider. Their leading choices include:
- Axis Bank
- ICICI Bank
- State Bank of India
- Bajaj Finance
- Godrej Consumer
- Reliance Industries
- Mahindra & Mahindra
- L&T
- CG Power
- Tata Power
- Lodha
All these stocks come highly recommended with a Buy rating, showcasing a strong leaning towards prominent financial institutions and key players in the petroleum sector.
Positive Outlook on Financials and Consumer Staples
Nomura remains upbeat about the financial sector due to its relatively low earnings risk and favorable valuations. Their positive sentiments extend to various other sectors, including:
- Consumer staples
- Discretionary goods
- Oil and gas
- Telecommunications
- Power
- Internet services
- Real estate
- Selective domestic healthcare
Additionally, they express an increasing optimism about the discretionary and automotive sectors, which have undergone considerable adjustments in expectations and valuations.
Caution in Export and Capital Expenditure Sectors
Conversely, Nomura has opted not to include any stocks from the Information Technology sector in their top picks. Their investment philosophy leans toward caution regarding several areas, specifically:
- Export sectors
- Capital expenditure themes
- IT services
- Industrials
- Cement
- Metals
Regarding the pharmaceutical sector, they note that current U.S. tariffs could pose immediate challenges. However, they anticipate that the burden will eventually be transferred, turning any resulting corrections into potential buying opportunities.
Earnings Predictions and Economic Slowdown
Nomura raises concerns about corporate earnings in India, predicting a 5% decline in earnings estimates for FY26 and FY27. They foresee that economic growth may slow, which could lead to earnings growth aligning only with nominal GDP growth in the short term. The current earnings-to-GDP ratio is already high, and pressures from dwindling capital expenditure, declining exports, and weak consumer sentiment are further concerns. Nevertheless, these factors may be somewhat mitigated by falling raw material costs, with Nomura projecting an additional 5% reduction in consensus earnings estimates for FY26/27.
In summary, while Nomura expresses a cautious yet hopeful outlook for specific sectors, they urge investors to remain vigilant and strategic in navigating the current economic landscape.
