BNP Paribas cuts 2026 Nifty target by 11% to 25,500; oil spike clouds outlook

Rising crude prices and persistent geopolitical tensions have begun to cast a shadow over India’s equity market outlook, prompting brokerages to cut Nifty targets for this calendar year. In the latest development, BNP Paribas has lowered its 2026 target for the Nifty 50 by 11% to 25,500, warning that the road to recovery may be bumpier than earlier anticipated.

“Our optimism about Indian equities’ 2026 outlook has moderated. The Middle East conflict and the resulting oil spike are the causes - and the ceasefire, while welcome, is not a clearance event,” the brokerage said.

The report noted that the after-effects of oil shocks tend to linger for several quarters.

Indian equities have already had a weak start to the year, with large caps down about 9% and underperforming mid- and small-cap indices, which are down 5-6% as of April 9, 2026. While consensus earnings estimates have not yet seen meaningful cuts, BNP Paribas believes the market correction is already pricing in both earnings downgrades and some degree of valuation de-rating.

The brokerage has lowered its base assumptions, cutting Nifty earnings estimates by 5% for CY26, and now expects earnings growth to slow to 11.6% from 17.5% earlier. It also assumes a valuation multiple of 18.2x forward earnings, slightly below the 10-year average of 18.6x. At the revised target level, the index implies a modest 7% return for 2026 from current levels.

“We believe the conflict and its impact, which includes likely margin pressure and potential demand destruction, are not yet reflected in consensus estimates,” the report noted. Over the past three months, earnings forecasts for the Nifty 200 index has been cut by just 1.3% for FY27, indicating more downgrades may be ahead.

Crude shock clouds outlook

The sharper-than-usual spike in crude oil prices is emerging as a key risk. Historically, such spikes have led to macro deterioration and economic slowdown in India, as seen in 2008, 2011 and 2022. BNP Paribas cautions that even if prices stabilise, the ripple effects - through inflation, margins and demand - could persist.

Brent crude prices surged by up to 50% in March amid the U.S.-Israel-Iran conflict, driven by fears of supply disruptions, particularly around Strait of Hormuz, which accounts for around 20% of global oil flows. Brent briefly touched $120 per barrel, up from around $75 before the conflict, raising concerns over inflation, currency pressure and weaker equity sentiment.

Sectors such as automobiles, cement, consumer durables and staples are expected to face margin pressure from higher input and freight costs. Infrastructure demand may weaken if government capex slows due to fiscal strain, while hospitals could see lower medical tourism flows amid travel disruptions.

On the other hand, IT services and pharmaceuticals may benefit in the near term from currency depreciation, providing some cushion to earnings, the report noted.

Valuations look attractive

India’s valuations have seen a sharp correction over the past six months, the steepest among major markets, with large caps now trading near their long-term average multiples since 2010.

BNP Paribas noted that current valuations are closer to long-term averages and appear more reasonable compared to recent years. However, this comfort is contingent on earnings assumptions that may still be too optimistic.

“Valuations have adjusted and are now pricing in estimate cuts to some extent, which provides some comfort,” the brokerage said, adding that further earnings downgrades could limit upside.

It also flagged that while the gap between bond yields and earnings yield suggests attractive entry levels - the best since 2021 - this may narrow if earnings are revised lower and inflation pushes bond yields higher.