Dalal Street outlook: JP Morgan downgrades Indian equity markets to neutral; shares worst case scenario

Indian equities are facing a more cautious outlook, with JPMorgan cutting its rating on the market to neutral from overweight. The brokerage warned that the Nifty 50 could drop to 20,500 in a worst-case scenario, which would mean a fall of around 15% from current levels. It stated that high valuations and uncertainty linked to the Iran conflict are weighing on sentiment. The firm said that while India’s long-term growth story is still strong, the near-term situation calls for caution. It added that even though valuations have started to cool, they are still on the higher side. JPMorgan, as cited by ET, also flagged risks to company earnings. These include possible disruptions in energy supply, which could affect several sectors. Analysts have already cut FY27 earnings estimates by 2% to 10% across key segments. The brokerage has also lowered its MSCI India earnings growth forecasts for CY26E and CY27E to 11% and 13%.

Here’s what the Wall Street giant said:

The brokerage noted that India’s large-cap companies have limited presence in fast-growing sectors like artificial intelligence, data centres and semiconductors, especially compared to markets such as the US, Korea, China and Taiwan. It also warned that a weak monsoon could hurt rural incomes and push up food prices. Given this backdrop, JPMorgan, as cited by the financial agency said that other emerging markets may offer better opportunities for now, until valuations become more reasonable or earnings outlook improves. Within India, it prefers sectors like financials, materials, consumer discretionary, hospitals, defence and power, and remains cautious on IT and Pharma. The brokerage has also lowered its targets for the Nifty 50. It now sees the index at 30,000 in a bull case, 27,000 in a base case and 20,500 in a bear case, down from its earlier estimates. Earlier this week, HSBC also downgraded India to underweight from neutral, its second downgrade in two months. It pointed to rising inflation risks due to high oil prices and strong demand, which could impact earnings growth. “The ongoing West Asia conflict has brought focus back to downside risks for growth, given India’s heavy dependence on imported energy,” the brokerage said in a client note. “While growth has shown signs of improvement over the past two quarters, we expect the recovery to be delayed from here.” HSBC had earlier cut its rating to neutral in late March, saying the risk-reward balance was not favourable. It added that while the recent market fall helped ease valuation concerns, pressure on company profits could still be a challenge.

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