The Bank of America has reduced its year-end Nifty target to 15,600, a more than 11% downside from the current levels.
The correction in the 50-share benchmark will be driven by volatile environmental pressure and looming global recession concerns, BofA said in an Aug. 8 report.
“While we see risks of further earnings cut, we note some of the earlier feared risks that we had highlighted—crude sustaining at higher levels, depreciating rupee, and rising inflation—are showing some initial signs of moderation.”
The revision ratio for Nifty and the NSE500 is at one standard deviation below the mean. “We think this could fall further as earnings cut could come in key front-facing sectors like IT and materials on ripple effects of slowing global growth.”
Earnings cuts, however, could “moderate as the key risks highlighted above are showing signs of moderation”.
The financial sector’s earnings are expected to “surprise”, aided by credit growth and improved asset yields for FY23-24, according to the BofA report.
The American research firm remains constructive on domestic cyclicals and consumption space, and is overweight on industrials, financials, autos and staples. It is underweight on external/export-driven sectors such as materials and select discretionary space, and neutral on the information technology sector.
Communication services, material and utilities’ earnings will be dragged by 5G capex plans and inflationary pressures and are expected to lag consensus.
Indian stock markets are witnessing equity buying from foreign investors following a long sell-off streak in 2022. The benchmark Nifty 50 has recovered nearly 16% since June lows, closing at 17,698.15 on Friday.
BofA picked Bandhan Bank Ltd. among its potential best performers along with Nykaa (FSN E-commerce Ventures Ltd.), while JSW Steel Ltd. ranked among its likely bottom-five stocks.
Here’s BofA’s top and bottom five versus the street’s view: