Year-end target for Nifty is 20,500, says Amish Shah of BofA Securities

The benchmark S&P BSE Sensex may have fallen over 2,500 points since touching its all-time high of 67,619 on July 20, but many experts are still bullish in terms of their outlook for the Indian stock markets though they acknowledge the fact that there are quite a few headwinds as well. 

For Amish Shah, Head - India Research, BofA Securities, the three key risks facing the Indian stock markets are the street’s elevated earnings growth expectations for Nifty, a busy political calendar in the coming months, near-term headwinds from erratic rains weighing on inflation, rising crude impacting margins for select sectors, and a potential economic stimulus in China impacting foreign flows to India. 

“Street’s earnings growth expectations for Nifty remain elevated at 17% CAGR over FY23-25. We believe earnings cuts are likely and build in 13%/11% growth over FY24/25… A busy political calendar in the coming months remains a risk. We could see volatility in the markets as some of the key states go for state elections,” says Shah. 

He, however, adds that the risks are transitory and are likely to normalise over a year’s time. He has a year-end target of 20,500 for the Nifty, which implies a further upside of nearly 1,200 points or a little over six per cent from the current levels of 19,315. 

In terms of support factors, he lists positive outlook on US along with a no-recession scenario, Nifty trading at average valuations, India in a phase where recession is no longer a risk, monetary policy moving towards a final rate hike, and strong domestic flows as factors that can further lift the markets from the current levels. 

Incidentally, Shah is bullish on domestic cyclical sectors like financials, industrials, and staples. 

“Financials: Strong credit growth, higher earnings visibility and margin of safety on valuations. Industrials: Strong capex cycle push, healthy order books. Expect working capital, RoEs, margins and execution to improve multifold – valuations could re-rate. Staples: Rural recovery, sustained volume growth, sustained F&B momentum, and lower Institutional ownership levels. Valuations are at average levels,” he says. 

Meanwhile, he is most bearish on sectors like IT, utilities, and metals. He is most underweight on IT on account of “below trend growth in the US, lack of visibility on deals/budget until after Q1CY24, and health of the BFSI sector in the US” as he believes that valuations are expensive.

Also Read: Eicher Motors, Archean Chemical Industries: Here's what Sunny Agrawal of SBI Securities says on these 2 stocks