NSE Nifty 50 may make a new all-time high of 19,066 points by June 2023, as global headwinds subside and commodities prices turn benign, brokerage firm Prabhudas Lilladher said, raising their base case target. The worst might be over for equities markets as global headwinds subside and prices of Crude, Metals, Palm Oil, and Agri commodities fall. “We believe softening prices of crude, bountiful monsoons, sharp increase in rural incomes from firm crop prices and improving labour employment will be key demand drivers in coming quarters,” Prabhudas Lillladher said in a report. The firm’s analysts earlier had a target of 18,622 points for the 50-stock index in their base case.
Bear, base, and bull case scenarios
Prabhudas Lilladher pins Nifty target at 19,066 in base case, translating to an upside of 18% from Monday’s opening. “We estimate NIFTY EPS at 859.2 and 979 which shows a growth of 12.6% and 13.9% for FY23 and FY24. Our estimates are at a discount of 4.1% and 4.7% to consensus EPS estimates,” they said. In terms of valuations the Nifty 50 index is seen to be currently trading at 18.2x one-year forward PE which is at an 11% discount to the 10-year average of 20.5, Prabhudas Lilladher analysts noted. They earlier had a base case target of 18,622 on the 50-stock index.
In bull case, analysts value Nifty at a 5% premium to the 10-year average PE of (21.5x) and assign a target of 21,525, up from 20,484 earlier. This suggests an upside of 33%. In the bear case, Nifty is projected to fall to 15,052, down 6.8% from current levels.
Worst seems over
“Indian markets are currently dancing to the tunes of global factors like crude prices, Inflation and fears of recession given the hawkish stance of central banks to increase interest rates to control inflation,” analysts noted. Although there is an expectation of a further increase in interest rates in the coming months by central banks, there has been a meaningful correction in prices of Crude, Metals, Palm Oil and Agri commodities.
Further, domestic inflation seems to have softened. “We believe that near-term inflation might have peaked out as MoM inflation in India has softened by 3bps, although it remains 100bps higher than RBI’s upper band of Inflation,” they said.
Prabhudas Lilladher is also projecting that the rural economy is on the cusp of a steady recovery buoyed by higher income and improving sentiments. “We are already witnessing some green shoots as demand for 2- wheelers, jewellery, real estate etc. we expect the demand to report steady improvement with covid 4th wave being very weak, revival in sentiments and improving farm income and employment opportunities,” they added.
Growth story intact
The report said that analysts believe that the structural story remains intact. This is led by strong demand for IT services, China+1 supply chain realignment gains in Pharma, Chemicals and Textiles, rising visibility of private sector capex, positive outlook for PLI schemes and the massive government-led Infra capital expenditure.