BofA Securities said that it remains cautious on equity markets due to the current volatile environment and looming global recession concerns, as reflected by a downgrade in Nifty50 FY23 and FY24 consensus earnings by 2.5 per cent and 2.2 per cent, respectively, year-to-date.
Post the recent market rally, Nifty50 has been trading at 19.2 times 12-month forward PE, a 13 per cent premium over the 10-year average.
The foreign brokerage said that its year-end Nifty50 target — valued at its 10-year average of 17 times 12-month forward P/E — has been revised to 15,600. Thursday’s closing price of 17,659 suggests a 12 per cent potential downside.
While the brokerage saw risks of further earnings cut, it said some of the earlier feared risks, such as crude sustaining at higher levels, depreciating rupee and rising inflation, are showing some initial signs of moderation.
“Given the slowing global growth and recessionary concerns around the corner, we expect earnings cut to continue. However, we believe earnings cut could moderate as the key risks highlighted above are showing signs of moderation,” it said.
The brokerage remains constructive on internal facing – domestic cyclical, consumption (overweight Industrials, financials, and autos, Staples) and underweight on external/export-driven sectors such as materials, select discretionary and neutral on IT.
The brokerage expected financials to surprise vis-à-vis consensus in FY23/24 due to earnings support led by credit growth and improved asset yields.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)
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