Citing the faster-than-expected interest rate hikes by the Reserve Bank and the mounting inflation worries, Wall Street brokerage Bank of America Securities has slashed its base case Nifty returns target and forecast the index to close the year at 16,000, down from 17,000 projected earlier.
In the negative case scenario, the brokerage warned of a massive 15 percent correction and the index closing at 13,700 by December.
After scaling many new highs, Dalal Street ended the fiscal 2022 with a healthy 18 percent gains, and ended calendar 2021 with a healthier 24 percent gains.
After an eventful 2020, the benchmarks showed strong resistance in 2021 as the economy showed signs of recovery and the Sensex gained 21.99 percent while the Nifty rose 24.11 percent.
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In FY 22, the Sensex returned 18.29 percent and the Nifty 18.88 percent. In a report on Tuesday, BofA (Bank of America) Securities said it sees flattish market returns from current levels as it cut its base case Nifty target to 16,000 by December from 17,000 points forecast earlier in the year.
The revised projection is based on faster-than-earlier-tightening by the Reserve Bank (by 40 basis points earlier this month in an off-cycle hike) as well as central banks of other key countries.
The report specifically listed the front-loading of the rate hikes by the US Federal Reserve at 50 basis point in May and similar hikes in June and July; rising inflation in the domestic market — CPI (Consumer Price Index) has printed in at an eight-year high of 7.8 percent– and the brokerage sees it averaging at 6.8 percent for FY23 vs RBI’s 5.7 percent projection.
The report cited easing of currently volatile crude prices, turnaround in FII (Foreign Institutional Investors) flows and bottoming of the rupee as upside risks to this view, but underlined that global inflation prints coming ahead of estimates (the US inflation is at a 40-year high and so is Britain’s), resulting in the faster-than-anticipated rate hikes, is the key downside risks.
In this negative scenario, the brokerage sees Nifty’s valuation shrinking to its long-term average of 15.8 times, resulting in the index plunging to 13,700 level.
(Edited by : Anand Singha)
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