Citi has lowered its December 2026 Nifty target to 27,000 from 28,500, paring it by about 5% as it factors in growing downside risks to earnings and the broader macro backdrop. The brokerage has also cut its one‑year forward valuation multiple to 19 times from 20 times, pointing to elevated oil prices, potential supply‑side disruptions across commodities, and the knock‑on effects on inflation, growth, and fiscal dynamics amid an increasingly uncertain geopolitical environment.
The oil price (Brent) has shot up beyond USD100 per barrel after significant disruptions to traffic through the Strait of Hormuz. The last time oil prices surged past USD100 per barrel was in 2022 following the start of the Russia-Ukraine conflict. The current geopolitical escalation is more concerning as the SoH accounts for 20-25 per cent of global trade in oil and LNG versus Russian supplies of 8-10 per cent.
Unlike the unprecedented closure of the SoH, the Russian supplies largely remained intact. “Thus, investors are likely to be more concerned about the current situation as it is more disruptive to energy supplies and prices. There are no signs of the disruptions ending at the moment. A regime change in Iran or a truce forced by economic pain can possibly end this conflict, in our view,” the brokerage noted.
India has a high dependence on imports for crude oil, LNG and LPG. The SoH accounts for 43 per cent and 63 per cent of India’s crude oil and LNG imports. Supply disruptions can adversely impact industrial production as almost all manufacturing industries have linkages to the oil and gas supply chain.
“A sustainably higher O&G price environment will adversely impact a fledgling growth recovery, drive inflation higher and strain external balance. We estimate that for crude oil prices upto USD 90 per barrel, the impact may largely be borne by oil companies and the government. Any incremental burden beyond this level will be passed on to consumers through higher fuel prices,” the brokerage said.
Nifty has corrected 8 per cent over the past two weeks. Such steep correction was recorded on two occasions in the past decade, during the Covid-19 pandemic in 2020 and at the start of the Russia-Ukraine conflict in 2022. The market valuations in terms of price to equity or spread over bond yields are at the low end of the valuation.
“We think an additional 5% correction (similar to the correction during the Russia-Ukraine war) is a distinct possibility in the near term, with small- and mid-cap stocks at relatively greater risk. Adverse flow dynamics can drive markets even lower in the short term. The domestic equity inflow growth has slowed down in the recent past. The valuation threshold for Fils are lower, aggravated by concerns about impact of Al and higher oil prices,” the brokerage noted.
The brokerage sees up to 10-15 per cent risk to consensus earnings estimates for FY27F in case oil prices remain elevated at current levels.
“We reset our Dec-2026 Nifty target at 24,900 (from 29,300 previously). Our base case assumes a 7.5 per cent reduction in consensus earnings estimates with price to equity multiple at 18.5 times (versus 21 times previously). We see Dec-2026 Nifty target in the range of 21,000-29,100 with our bull case assuming an immediate de-escalation of geopolitical tensions.
“Through this phase of market correction, we expect utilities, coal, oil producers, healthcare, pharma, staples, and telecom to outperform. Fundamentally, we are constructive on these sectors, except for healthcare services and staples, where we find valuations demanding. We recommend a bottom-up approach with a greater focus on valuation-and not just the narrative,” it noted.
The brokerage noted that, “We expect no change in retail fuel prices at USD 80 per barrel. At USD 100 per barrel, domestic fuel prices will face upward pressure of Rs 10 per liter, and of Rs 25 per liter at USD 125 per barrel”.
In lieu of the above, the brokerage lowered the Nifty 50’s target multiple to factor in downside risks to FY27E earnings. It further added that if Brent price sustains for three months, “we estimate 15-20 bps upside risk to FY27E inflation, 5-10 bps downside risk to growth, USD 20 billion upside risk to CAD, and Rs 35,000 crore (0.1 per cent of GDP) upside risk to Centre fiscal deficit (assuming all cost absorbed by excise duty cuts).
Citi noted that this war is going beyond a simple energy “price” shock to a “quantity” disruption spread across fertilisers, petchem, aluminum, LPG, LNG, etc.
This in turn will impact input cost and availability in sectors like autos, construction, household appliances, electronics, apparels, farming & food industry, pharma & medical, paints, shipping cost, etc.
Citi noted that fiscal and monetary responses will be based on the conflict’s duration and severity, aiming to manage supply, allocate resources, and absorb costs. RBI’s response to stagflationary shock will depend on both fiscal response and duration of any price hikes.
“For now, the approach of the RBI is to ensure no amplification of global shocks through rates and FX. We maintain our view that the RBI will be on a pause in the April MPC. The tone of the policy will depend upon the evolving geopolitical situation, but it could be leaning towards growth if fiscal policy absorbs most of the inflationary impulses, “it noted.
In 2022, Nifty valuation multiples declined sharply, with the one‑year forward price‑to‑earnings ratio bottoming out at around 17 times by mid‑2022 following the start of the Russia–Ukraine war, compared with roughly 18 times at present. The extent of the impact on corporate earnings, the brokerage notes, largely depends on how long supply disruptions persist and how prolonged the shutdowns across critical commodities and supply chains turn out to be.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money related decisions.)
