Stock market bottom: Nifty at 17,434! What a deeper correction may look like

Ventura Securities sees good possibility of a pessimistic scenario ahead, in the backdrop of a reversal of US trade policies, the DOGE clampdown on spending, urgent rectification of the US fiscal deficit and the Trump administration's preference to onshore manufacturing over imports. 

Ventura said the US government debt currently stands at $34.6 trillion, which is 120 per cent of its GDP). To stimulate the economic growth and job creation, the government has proposed a $4.5 trillion tax break, and the debt ceiling has been also raised by $4 trillion. 

Ventura feels this move could increase the budget deficit and debt requirements. To mitigate fiscal pressures, the government has outlined a $2 trillion spending cut blueprint.

Ventura said another key concern for the stock market is that if the US GDP growth rate falls below the Fed interest rates, then there is possibility of the US getting into a debt spiral. Already interest spends have surpassed defense spends and should be taken as a warning if the situation is not corrected.

"Another challenge lies in the fact that $12.6 trillion debt was issued post Covid at very low rates. Now with $3 trillion maturing in the current 2025, this will need to be rolled over at 4.3 per cent, a rate that is significantly higher than when it was issued. The Fed faces a policy dilemma—cutting rates could reignite inflation, while raising rates would escalate the interest burden on the national debt, making fiscal sustainability more challenging," Ventura said.

It noted that Japan experienced a similar situation in 1972, when the Bank of Japan's (BoJ) interest rates and inflation outpaced GDP growth. This imbalance deteriorated its debt position, eventually pushing Japan’s debt-to-GDP ratio beyond 100 per cent during the 1998 Asian Financial Crisis. After crossing this threshold, Japan's debt levels became unsustainable, and Japan struggled to recover. By 2024, its debt-to-GDP ratio exceeded 250 per cent, while GDP growth remained virtually stagnant.

"Investors may reprice equities based on lower earnings growth, leading to potential stock market corrections, which will have a cascading effect on the global capital markets," it said.

Ventura said the Trump administration has taken a measured, stubborn and deliberate approach to address this issue by prioritizing debt reduction. While this strategy aims to break the spiral of debt it could lead to liquidity contraction which can have a disruptive effect on the already inflated valuation multiples.

Nifty levels

Ventura said Nifty’s forward PE valuations for 2025 and 2026 have declined to multi-year lows of 18.5 times and 16.2 times, respectively. Historically, during major market meltdowns — such as the Global Financial Crisis (GFC) of 2008 and the Covid-led crash in March 2020—Nifty’s forward P/E dropped to 10.5 times and 15 times, respectively. In 2020, despite Covid being more melodramatic than the GFC, the fall was not as deep as the world was more aware of what quantitative easing (QE) was, and its effect, than in 2008.

Ventura said if valuations during previous corrections are used as reference points, Nifty could decline to 20,510  -- based on 2025 consensus EPS of Rs 1,194 and 15 times  forward EPS seen during the 2020 Covid crash.

In the extreme stress-case valuation, Nifty can drop to 14,357 if it mirrors the 10.5 times forward PE from the 2008 GFC levels. The median of the two, the 17,434 level at 12.75 times EPS is the more likely deeper correction, the brokerage said.