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BofA Securities has further cut Nifty year-end target to 14,500 from 16,000 citing persistent headwinds.
In addition to tightening monetary conditions across the globe and a slowing economy, including fears of a recession in the US, Bofa Securities sees other risks such as likely earnings cut for Nifty in 2Q/3Q FY23 and sustained headwinds from high crude prices. It also noted that Nifty is vulnerable to its 10-year average despite recent correction.
"We cut our year-end Nifty target to 14,500 (from 16,000) with target multiple of 17x (close to 10 year avg.) from 18.4x (+1SD levels), factoring in the near-term negative event horizon," it said adding “our target implies 7 per cent downside potential from current levels.”
To bottom out in Aug/Sept
For sensitivity, Nifty earnings growth moderation to 15 per cent in FY23/24 could further drive down our target to 13.5k, implying a negative 14 per cent potential returns, it said.
“We note most of the above negative events are either likely to play out in the next two to three months or could see more clarity. Pricing in of these negatives, we believe, could lead markets to bottom by Aug/Sept 2022,” the report said.
US Bank index & Bankex
While Bofa remained overweight on select domestic cyclicals like industrials, finance and autos, it marginally trimmed its ‘Overweight’ skew on financials, given that while sector earnings visibility remains strong, Bankex exhibits strong correlation with US bank index performance and hence could see some headwinds from negative sentiments on fears of a US recession.
“We see limited risks for the capex upcycle thesis on strong govt. intentions and limited historical inverse co-relation with rates cycle,” it added.
It has maintained ‘Neutral’ stance on IT on account of strong earnings and USD tailwinds and ‘Underweight’ on communication services (5G auction overhang), high beta discretionary (growth slowdown/ valuation concerns) and materials (de-rating on pricing pullbacks).
A few upgrades
“We maintain a defensive strategy skew, as we further raise our overweight stance on staples, healthcare and utilities. We move energy to Overweight (from Underweight) on sustaining higher energy prices,” it added.
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