NSE Nifty 50 and BSE Sensex could climb to fresh all-time highs in the next one year, backed by healthy earnings growth, analysts at ICICI Direct have projected. The brokerage firm has moved its 12-month rolling target for Nifty 50 to 18,700 which would not just be a fresh all-time but would translate to a 13% upside for the benchmark index from Wednesday’s closing price. The corresponding target for Sensex is 62,300. However, the target is a downward revision by ICICI Direct. The report authored by Pankaj Pandey – Head of Research, ICICI Direct, noted that corporate earnings, a true barometer of economic health, have been quite resilient. Nifty hit an all-time high of 18,604 in October and Sensex touched 62,245 in the same month.
Domestic stock markets have in the last few months witnessed a sharp correction along with global equity indices. The fall has come owing to various factors such as geopolitical conflict, rising key commodity prices, and resultant interest rate hikes. However, earnings have been good. “Interestingly, as against the general sense, corporate earnings have not been disappointing in Q4FY22 with our aggregate earnings undergoing no change on forward basis,” Pankaj Pandey said.
The brokerage firm noted that the management commentary across businesses was positive on the demand outlook amid a pick-up in economic activity, aggressive infrastructure spending outlay by the central government, and revival in private capex cycle but was wary of further input costs inflation resulting in broader price hikes and a tad soft margin trajectory.
Headwinds have not gone completely unnoticed and ICICI Direct have trimmed their valuation multiples amidst a greater than anticipated interest rate hike trajectory ahead. “Consequently, there is a downward revision in our index target,” Pandey said. “We still remain constructive on markets and believe it is the right time to build a portfolio of quality companies which are capital-efficient in nature, have lean B/S and possess growth longevity,” he added.
ICICI Direct projects that over a three-year horizon (FY21-24E) Nifty earnings could grow in excess of 20% CAGR while in FY22-24E, albeit on a high base, earnings CAGR is at close to 14%. “Rolling over our valuations to FY24E and trimming our forward PE valuation multiples amid rising rate hike scenario we now value the Nifty at 18,700 i.e. 20x PE on FY24E EPS of Rs 935,” the brokerage firm said. The corresponding target for BSE Sensex is at 62,300. “As structural bets, we like capex linked capital goods, commercial vehicle space, and PLI oriented domestic manufacturing play,” the note added.