Nifty 50 could remain largely flat from here on till the end of the year provided there are no further escalations between Russia and Ukraine.
Nifty 50 could remain largely flat from here on till the end of the year provided there are no further escalations between Russia and Ukraine, said analysts at Bank of America. The global brokerage firm expects the benchmark index to end the year at 17,000 aided by macro buffers and limited EPS impact as geopolitical conflict eases or at least doesn’t escalate further. BofA analysts, however, said that investors could pocket large returns if they rotate sectors, favouring financials and industrials. So far this year Nifty 50 is down 2%, currently trading just above 17,000 levels.
Nifty seen ending year 2022 at 17,000
If the geopolitical crisis eases, Bank of America analysts believe that the presence of buffers such as conservative fiscal deficit assumption, and large FX reserves will prevent any large macro deterioration in such a case. Economists at the brokerage firm have trimmed FY23 GDP forecast marginally to 7.9% from 8.2% earlier. However, overall profit growth for the index is not seen to be at risk. “Earnings sensitivities of BofA sector analysts also indicate overall Index PAT growth is unlikely at risk: we still see ~22% FY23E Nifty EPS growth,” they added.
Analysts believe that the recent election victory for the government could drive reforms. FII outflows could stop and possibly reverse with focus likely to be on back on India’s medium-term growth prospects.
Sector rotation
While index level returns seem muted, sector rotation could drive larger returns. “We retain a constructive skew with ‘OW’ on Financials and Industrials – sectors which saw maximum trimming of weights by FIIs since October 2021 peak,” BofA said. The brokerage firm added that large banks could see EPS upside on gradual rate hikes and inflation. Capex upcycle thesis is also expected to remain intact on the fiscal impact of higher crude getting absorbed through multiple levers such as partial pass through to retail prices, absorption by OMCs. BofA has lowered Staples to underweight on consumption impact, moved Healthcare, Autos to overweight.
If the geopolitical crisis worsens
In BofA’s worst-case scenario, which expects the crisis to worsen, the average crude price at $130 per barrel, and GDP sliding to 7.5%, the Nifty index may slide down to 14,000. In such a scenario, analysts opt for a defensive skew. Overweight on IT, utilities, healthcare, and telecom, along with energy/metals on likely higher commodities. Financial and Industrials are moved to underweight here.