A few brokerages have come out with Nifty50 targets, ranging widely between 13,800 and 18,400. While analysts noted that commodity prices have started falling gradually, they do not rule out correction in valuation multiples going ahead.
Nifty50’s trailing 12-month PE ratio has declined 25 per cent since October 2021 to 19.5 times and is much below the 2014-2019 average of 24 times. The correction in valuations, especially since the start of 2022, is attributable to rise in cost of capital and higher market risk premium, analysts said.
“We maintain that PE average could be converging to the pre-2013 average of 18.5 times compared to 24 times during 2014-19 and current levels of 19.5 times,”
said in a note.
Nifty50 can move to 13,800 mark, which is around its long-term average, given accelerated liquidity withdrawal along with slowing earnings revision momentum, said Elara Securities in a strategy note.
A couple of metrics imply “the Nifty50 could trade in the range of 12,200-15,400 on a 12-month forward basis, making it a good entry level in the light of overall volatility,” the brokerage said.
Global macros are changing rapidly, from expectations of inflation being transitory to inflation fight taking center-stage to earlier-than-anticipated US recession concerns with geopolitical challenges and China’s disruption-oriented policies acting as wild cards. Data showed the NSE barometer has corrected 14 per cent from its lifetime peak of 18,477 to 15,000 level.
“In such a scenario, we believe earnings fundamentals will be key drivers for equities prices as valuation derating is here to stay, led by monetary policy normalisation,” Elara said.
JM Financial in the July 1 note suggested a 10 per cent downside on Nifty50. The index is up 1.5 per cent since.
The consensus sees overall earnings growth to be 15.4 per cent YoY in FY23, with the bulk of the contribution coming from financials (6.1 per cent), said
, which added that Nifty50’s valuations are still at a premium to the high-yield period of 2010-14.
“While we evaluate the risk to valuation multiples in the high-yield scenario, over the last few weeks we have seen some moderation in commodity prices and inflation concern. The Indian macro situation is also better (high forex reserves, political stability) compared to the 2010-14 period and this provides us comfort,” it said.
Foreign brokerage BofA Securities recently cut its year-end target for Nifty to 14,500 points from 16,000 as projected earlier in January, citing near-term headwinds on the macro front.
The brokerage said the near-term headwinds include fast tightening monetary conditions, slowing growth or fears of US recession and likely Nifty EPS cuts.
Elara, JM Financial and BofA Securities’ targets suggest up to 13 per cent potential downside. On the other hand, Axis Securities’ target of 18,400 target suggests a 15 per cent potential upside.
(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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