NEW DELHI: The recent rally of the Indian market has taken the trade pundits by surprise. After the BSE Sensex and the NSE Nifty, gained about 18 per cent from the low of June 17, there are contrasting views as to where the two benchmark indices are heading.
While one section, mostly domestic brokerages, feels that the Indian equity market is well poised to touch new highs, there is wide pessimism among a few global brokerages who believe that current fundamentals do not justify the high valuation.
ICICI Securities believes that the Nifty index may touch the 19,425 mark in the next 12 months, while the Sensex may hit 64,700 during the same period as the recent cool-off in key commodity prices has come as a breather for global equity markets.
“The recent cool off in key commodity prices viz. metals, crude among others comes as a breather for global equity markets, which are currently wary of ongoing geopolitical issues and interest rate hikes by central banks to control inflation. Management commentary is upbeat on demand prospects and recovery in margin profile amid muted corporate earnings for Q1FY23, which witnessed low single digit Q-o-Q growth in topline and double-digit bottom line decline with pressure on gross margins,” the brokerage said in a note on Friday.
It added, “Incorporating revised PAT estimates post Q1FY23, our forward estimates witness a decline of 2 per cent. Over FY22-24E, albeit on a high base, Nifty earnings are seen growing at a CAGR of 13.3 per cent.” Global & domestic markets have been witnessing volatility over ongoing geopolitical issues and interest rate hikes by key central banks.
On the domestic economic parameters front, data points are encouraging in terms of GST collection, PV sales order-book and e-way bill generation. The Monthly GST collection came in at a three-month high of Rs 1.5 lakh crore for July 2022 vs Rs 1.45 lakh crore in June 2022.
Sunil Damania, Chief Investment Officer, MarketsMojo, said that substantial GST collections were one of the reasons why equity markets became bullish, in addition to strong direct tax collections. These factors indicate healthy economic growth, despite global economies struggling.
A correction on the line?
Indian equity benchmarks fell over 1 per cent on Friday, snapping an 8-session winning streak after minutes from the Federal Reserve’s July meet called for a debate on the direction of US interest rates. This again highlights the vulnerability of the Indian equity market over global cues.
When the US Federal Reserve delivered a rate hike at the upper end of the expected range in May and there was looming fear of a global recession, Sensex had slumped to a fresh 52-week low of 50,921 on June 16. Few international brokerages are not very optimistic about the ongoing rally and expect a major correction in the near future.
American brokerage BofA Securities on August 11 hinted that there is a pain in store for investors in Indian equities and said the 50-share benchmark Nifty will be at 15,600 points by December 31, 2022.
The Investors Approach
Commenting on Friday’s surprise fall, Sameet Chavan, Chief Analyst-Technical and Derivatives, Angel One, said that traders are advised to lighten up longs in this rebound and stay on the sidelines for a while.
Aggressive traders can certainly look to initiate bearish bets by keeping a strict exit strategy beyond 18000.
What Brokerages Say
Bullish View
ICICI Securities estimates Nifty at 19,425 mark and Sensex at 64,700 in 12 months
Marketsmojo pegs Sensex at 65,000 by December 2022
Bearish View
BoFA Securities sees Nifty at 15,600 points by December 2022
Jefferies sees a correction of 15% in Nifty from 17,500 if there is a mean reversion of the spread between bond yields and earnings yields