BofA Securities has revised its year-end Nifty goal to 14,500 (from 16,000) with goal a number of of 17x (near 10-year common) from 18.4x, factoring within the near-term damaging occasion horizon. The goal implies a 7% draw back potential from present ranges, in line with a report. For sensitivity, Nifty earnings progress moderation to fifteen% in FY23/24E might additional drive down the goal to 13,500, implying (-)14% potential returns, it added.
“Nifty valuation, though corrected, still appears vulnerable close to its 10-year average. We maintain a cautious stance with defensive sectoral skew & a revised year-end Nifty target of 14,500,” BofA Securities wrote in a notice. While the Nifty now trades at 17x one-year ahead consensus EPS (21x as on January 1, 2022), BofA believes that it might see additional contraction, led by earnings cuts and the slowing world progress. The US doubtlessly slipping right into a recession is a key draw back danger that would act as a damaging set off, the report stated.
BofA has remained cautious on the Indian markets and has cited 5 causes for its stance. These are: Fast tightening financial situations, slowing progress/fears of US recession, earnings cuts, costs of crude oil and valuations. According to the brokerage, many of the above damaging occasions are both more likely to play out over the subsequent two-three months or extra readability will emerge on these fronts. Pricing in of those negatives could lead on the markets to backside by August-September, the report stated.
Aided by sturdy home institutional investor inflows (~$24.3 billion 12 months to this point, in contrast with $26 billion FII outflow), Indian equities have outperformed their world friends. The Nifty is down 11% in contrast with a 23% fall within the S&P 500.
According to the BofA report, the Indian markets might witness a pointy correction if home fairness inflows reverse, led by rising yields (debt/bonds might pose in its place funding possibility) or market correction-led redemption. “However, our analysis since 2000 suggests: (1) only a small negative correlation (-11%) between domestic equity outflows and debt inflows; (2) overlap of equity outflows and debt inflows is seen for only 23%-29% of monthly instances even when 10-year GSec yields were more than 8-9%…” the report stated
Source: www.financialexpress.com”