Nomura sees 12% rise in Nifty this year on strong macros, easing inflation, better earnings

Nomura's base case anticipates ongoing disinflation, lower yields, a modest global growth slowdown, and favorable 2024 general elections

Nomura predicts a 12 percent rise in benchmark Nifty to 24,260 in 2024, based on 20x December 2025 earnings forecast. Their fair value range is 18-21x, suggesting a 0-7 percent return this year.

Nomura's base case anticipates ongoing disinflation, lower yields, a modest global growth slowdown, and favorable 2024 general elections. They predict India's valuation to stay high, backed by macro stability, clearer earnings visibility, and increased capital flows.

However, sustained high commodity or oil prices and adverse election outcomes pose significant risks for India. Globally, scenarios of no landing (strong growth, persistent inflation, higher yields) and a hard landing (steep declines in growth, inflation, yields) could raise risk premiums and lower valuations. Nomura views such corrections as buying opportunities, especially if a US slowdown or recession resolves macro uncertainties, potentially sparking a revival in mass consumption and private investment, it adds.

"We are selective and slightly defensive given the run-up in valuations in the recent past. The expectations on the growth-inflation balance is extremely sanguine. Any deviation from this optimum can set a risk off in the backdrop of higher debt and fiscal deficits post the pandemic", Nomura said in its latest note.

Nomura favors domestic sectors and is overweight on Financials (especially Banks), Healthcare, Consumer Staples, Infrastructure, Cement, Power/Coal, Oil and Gas, and Telecom. They are underweight on Consumer Discretionary/Durables, Capital Goods/Defense, Metals, Internet, and IT. Nomura takes a selective stance on Autos.

Its top picks in large cap are ICICI Bank, Godrej Consumer Mahindra & Mahindra, L&T and Reliance Industries. Its top picks in small and mid cap are Coforge, Lupin, Medplus Health Services, Dalmia Bharat, Federal Bank, Sansera Engineering.

Nomura anticipates a 20 percent CAGR in corporate earnings (Nifty 100) from FY19-24, a significant increase from the mid-to-high single-digit growth in FY15-20. Corporate earnings to GDP, which declined post the Global Financial Crisis (GFC), rebounded to 8.8 percent in FY23 from a low of 4.6 percent in FY18. Financials played a major role in this recovery, with other sectors also showing notable profitability improvements.

Nifty50 earnings have generally met expectations for FY24/25 estimates over the past nine months (April to December), unlike previous trends. Nomura foresees medium-term corporate earnings in India sustaining between 12 percent and 17 percent, driven by increased private capex, rising exports, and supported by government policies encouraging domestic manufacturing. In FY25/26, Bloomberg consensus earnings growth estimates for Nifty 100 of 12.2 percent/12.5 percent are at the lower end of our medium-term earnings growth expectations.

"We see near-term earnings risk as modest, which can be due to slower growth and higher commodity prices vs current expectations. With a pickup in private capex and exports, we think earnings growth could accelerate in the medium term,"\ Nomura report added.

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