MUMBAI: After a continuing slide in equities, a foreign brokerage on Monday said there is a possibility of further consolidation on factors including potential of localised lockdowns.
A broad-based market rally is "unlikely" as the 50-share benchmark Nifty is already trading at the year-end target of 15,000 points, the report by Bofa Securities said.
The markets ended in the red for the fifth consecutive session on Monday, with the NSE's benchmark Nifty sliding to under 14,700 points on Monday.
"We...see rising bond yields and potential localised lockdowns as risks for markets ahead. With Nifty already at our year-end target of 15,000, continuation of a broad based market rally appears unlikely," the analysts wrote in the report.
They said sector rotation can help generate returns for investors and preferred companies in industrials and materials sector which can benefit from the capital expenditure push, and financials which can get faster loan growth.
Meanwhile, the brokerage said 31 companies comprising nearly half of the 50-share Nifty's market capitalisation are exposed to commodity risk and this reliance can also lead to a consolidation imminently.
"So far, companies haven't seen full impact as they had low-priced raw material inventories, but we see this as an imminent risk. Discretionary, materials, staples, energy, industrials sectors, in that order, are most at risk," the report explained.
Healthcare and utilities should be able to pass on commodity cost pressures, the brokerage said, adding that it sees no impact for financials & IT services sectors.
About 54 per cent of free float weighted market cap within Nifty, represented by the services sectors (financials/IT/Telecom), have no exposure to commodities, 6 per cent of market cap has limited exposure at less than 20 per cent of sales, while the rest 40 per cent market cap has high exposure, it said.
Steel, cement, crude, coal, copper, aluminum, iron ore, palm oil and caustic soda are the key commodities relevant for Nifty companies because they are up by up to 75 per cent since June 2020.