Nomura has downgraded Indian equities to 'neutral' from 'overweight', citing concerns over elevated oil prices influenced by geopolitical tensions in West Asia, a potential slowdown in domestic inflows, and India's lagging position in the artificial intelligence (AI) sector. The brokerage highlighted that disruptions in energy supplies through the Strait of Hormuz could sustain high oil prices, negatively impacting India's economy and corporate earnings. Chetan Seth, Asia Pacific-Equity Strategist at Nomura, noted that India is among the most vulnerable economies in Asia to high energy prices due to its heavy reliance on imports. With foreign portfolio investors (FPIs) offloading around $61 billion worth of Indian equities since late 2024, domestic investors have been cushioning the impact through systematic investment plan (SIP) inflows. However, Nomura warns that participation may decline if market returns remain subdued. Valuations are another concern, with the MSCI India index trading at about 18.9 times forward earnings, a 55% premium compared to Asia ex-Japan peers. Last month, Nomura lowered its December 2026 Nifty target to 24,900 from 29,300, reflecting risks to earnings growth estimates.