“We see no upside to our Nifty year-end target of 18,000; would look to book profits,” equity strategist Amish Shah said in the report.
That said, the brokerage advises buying into the dips if Nifty50 moves towards 16,000 level because domestic flows remain resilient, and so are the macroeconomic factors.
The fallout of First Republic Bank, the third one in 2 months, signals that problems on the financial sector front are far from over, Shah said.
Moreover, the debt ceiling risks that the US is staring at, and weakness in the commercial real estate market could be signs of an imminent US recession, BofA Securities analyst added.
The brokerage believes that global slowdown risks and potential volatility in commodity prices do not reflect in the earnings growth expectations for India Inc.
“The Street’s lofty FY24/25E EPS growth of 17%/16% for Nifty could be cut by 40% as signs of weak earnings from global slowdown are already visible (IT)..,” it said.The additional risks come from a delayed revival in rural consumption, a potential peak in urban demand, and margin headwinds from volatile commodities.
Therefore, valuations at 1-year forward P/E of 19.5 times would seem expensive, once Nifty’s earnings growth normalizes to 11% and 9% respectively, in FY24 and FY25.
BUY NIFTY50 AT 16,000
Analysis by BofA Securities shows that Indian markets fall less and recover faster in a US recession situation.
Indian markets deliver higher returns versus the US in the 1-year period post the US recession. As a result, it recommends investors to adopt a “buy on dips” strategy in case of a fall.
Further, the brokerage expects domestic passive inflows to remain strong at more than $20 billion, with 75% of them going into large caps.
Therefore, the brokerage expects largecap stocks to outperform mid and smallcap stocks.
Meanwhile, BofA Securities also sees outflows from foreign investors moderating given that their position in India within the emerging market pack is at a multi-year low.
SECTORAL BETS
BofA Securities is the most “underweight” on the IT sector given the risks to earnings from a US recession and the banking crisis.
It continues to remain “underweight” on consumer staples due to uncertain rural consumption revival amid El Nino risks, and also on consumer discretionary as urban demand is likely peaking.
It is also bearish on the telecom sector given the lower visibility on tariff hikes and potentially higher capital investments in 5G services.
The brokerage is, however, bullish on financials, industrials, cement, steel, select automobile names, and utilities and healthcare as defensive plays.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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