Indian share markets are likely to witness correction in coming weeks amid high volatility and global recession concerns. Benchmark index Nifty 50 will be at 15,600 points by December 31, 2022, said BoFA Securities in a report. “We remain cautious on markets on the current volatile environment and looming global recession concerns as reflected by consensus downgrading NIFTY FY23/24 earnings (YTD -2.5%/-2.2%),” it said. While the American brokerage firm sees risks of further earnings cuts, it noted that some of the other feared risks highlighted earlier, such as crude sustaining at higher levels, depreciating rupee, and rising inflation are now showing some initial signs of moderation.
Nifty may slip 10%; earnings cut could moderate
“With the recent market rally, Nifty currently trades at 19.2x 12 month Fw P/E (13% premium to 10yr avg). With BofA analyst upgrading earnings in Autos, Industrials and Energy, our year end Nifty target, valued at its 10yr avg. of 17x 12 month forward P/E, changes to 15,600 implies 10% downside from current levels,” it said. As of July, the street has revised Nifty FY23 and 24 earnings down by -2.5% and -2.2% YTD respectively. Given the slowing global growth and recessionary concerns around the corner, BoFA Securities expects earnings cuts to continue. However, it believes that earnings cuts could moderate as the key risks highlighted earlier are showing signs of moderation.
Underweight on export driven sectors; Constructive on internal facing sectors
Note that markets have witnessed some buying lately with the return of foreign portfolio flows, after a sustained sell-off which saw the foreign portfolio investors pulling out over $29 billion. Admitting that there are risks of further earnings cuts, BoFA analysts pointed out some positives as well, which include moderations on high crude prices, rupee depreciation and domestic inflation. Analysts remain constructive on internal facing sectors, such as domestic cyclicals and consumption, and remain underweight on stocks in the external/export driven sectors such as materials and select discretionary. They are neutral on the information technology sector.
Financials to surprise as credit growth, improved yields on asset support credit growth
Comparing its calls with consensus estimates, BoFA Securities said that it expects financials to surprise as the earnings are supported by credit growth and improved yields on assets. Analysts expect communication services, materials and utilities to lag the consensus estimates in FY23 and FY24, reasons being the drag from 5G capex plans and inflationary pressures.
(The recommendations in this story are by the respective research analysts and brokerage firms. FinancialExpress.com does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)