West Asia Conflict Triggers Major Downgrades for Indian Markets by Global Brokers
The ongoing war in West Asia, coupled with the resulting oil price shock currently affecting the Indian economy, has prompted leading foreign brokerages and analysts to significantly reduce their earnings estimates for India Inc and cut targets for the Nifty index by nearly 12%. They have issued warnings that a prolonged conflict and a surge in oil prices to new all-time highs could lead to severe repercussions for both the economy and the stock market.
Brokerage Firms Revise Nifty Targets Downward
In response to the escalating situation, foreign broking major Goldman Sachs has revised its Nifty target downward to 25,900 points from an earlier projection of 29,300 points. Similarly, Citigroup has adjusted its target for the index to 27,000 points, down from 28,500 points previously. HSBC highlighted historical trends indicating that a 20% increase in oil prices could potentially drag down earnings for India Inc by 1.3 percentage points. Since the outbreak of the conflict, crude oil prices have surged by approximately 50-55%.
Goldman Sachs Downgrades India to 'Market Weight'
Goldman Sachs has downgraded India from an 'overweight' to a 'market weight' rating, citing a less attractive risk-reward matrix compared to other Asian markets. This decision is attributed to worsening macroeconomic conditions and a slowdown in earnings growth. Analysts now anticipate that India Inc will demonstrate earnings growth of 8% in 2026 and 13% in 2027. The financial services firm noted that risks are skewed to the downside over the next three to six months, as the market may not fully account for potential earnings cuts. Possible upside catalysts include an earlier-than-expected resumption of oil flows and a clear recovery in India's earnings cycle.
HSBC Analysis on Oil Price and Currency Impact
HSBC's report revealed that data shows a 10% supply-driven rise in oil prices typically leads to about a 1.3% decline in the broader Indian equity index. Sectors such as consumer discretionary, tech services, and financials are particularly vulnerable to these effects. The risk is further compounded by currency weakness, with a 1% depreciation of the Indian rupee translating into an additional 1% drag on the market. These relationships align with recent performance, where oil has risen about 55% since the conflict began, and the rupee has depreciated by approximately 3.5%, implying an overall market impact of around 11%.
BNP Paribas Report on Current Account Deficit
The BNP Paribas report indicated that a 10% increase in oil prices results in about a 35 basis points rise in the current account deficit. It also noted that with the war continuing, remittances from West Asia could slow down, further impacting the current account deficit and adding to economic pressures.
