Global brokerage firm Nomura has presented a tempered outlook for India’s stock markets in 2025, setting a Nifty December target of 23,784. This forecast reflects potential returns ranging from -8 per cent to +9 per cent, a clear indication of the cautious sentiment surrounding Indian equities.

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The subdued projection stems from expensive valuations and downside risks to earnings growth.

Valuation concerns and earnings slowdown

Currently, the Nifty trades at 19.4x one-year forward consensus earnings, slightly above the pre-Covid (2017-19) average of 17.7x but within the post-Covid range of 17-23x. Analysts Saion Mukherjee and Amlan Jyoti Das from Nomura estimate a multiple of 18.5x for December 2026 earnings, factoring in 5 per cent lower earnings than consensus. This translates to a December 2025 target of 23,784, representing a marginal 0.5 per cent upside from current levels. The bear case target of 21,856, based on a 17x multiple, implies a 7.7 per cent downside, while the bull case target of 25,712 offers an 8.6 per cent upside.

Sectoral preferences

Nomura advises investors to adopt a highly selective approach, favouring sectors with relative valuation comfort. The firm maintains an “overweight” stance on Financials, Consumer Staples/FMCG, Oil and Gas, Pharma, Telecom, Power, Internet, and Real Estate. Conversely, it is “underweight” on Consumer Discretionary, Autos, Capital Goods, Defence, Cement, Hospitals, and Metals, with a neutral outlook on IT Services and Infrastructure.

Macro drivers: Global and domestic uncertainties

Globally, Nomura expects robust growth in the US economy, forecasting a 2.8 per cent GDP expansion in 2024. However, China’s weak economic momentum due to property market issues and geopolitical tensions remains a concern. Japan’s recovery and a slowing Eurozone further complicate the global picture. Domestically, India’s GDP growth is expected to recover from a lacklustre 5.4 per cent in Q2FY25, but Nomura warns of moderate recovery risks, estimating 100 basis points of policy rate cuts in 2025.

Earnings and market flows

India Inc’s earnings growth slowed to 4.5 per cent YoY in H1FY25 and is expected to remain sluggish in H2FY25. Key contributors to future growth (FY25-27) include Banks, Oil and Gas, Metals, IT Services, and Autos. However, high valuations and a strong US dollar could deter FII inflows, while prolonged low returns may weaken domestic investor sentiment.

Nomura’s cautious stance underscores the importance of strategic sectoral bets in navigating a challenging 2025 for Indian equities.