Wall Street brokerage Bank of America Securities has sharply revised upward its Nifty forecast in the range of 18,500-19,500 points by December, after two successive downward revisions in June and earlier this month.
The brokerage cited the recent buying spree by foreign portfolio investors, pumping in more than Rs 44,000 crore in this month, along with continuing domestic flows, strong fiscal fundamentals and buoyant tax collections as key positives for the upper range, while the negatives include faster-than-expected revival in China, weakening in global macro/geopolitics in the reminder of the year.
"While we expect further downside risks to earnings from spillover effects of the weakening global macro and high base for Nifty profits for the rest of the year, it is unlikely to be steep near-term, given the sharp correction in crude/commodities. So we expect Nifty to trade within a range of 17,000-19,500, as positive/negative risks play out, with 18,500 points as our base-case target for December, BofA analysts said in a note on Monday. The report comes even though the domestic market fell sharply to the tune of 1.5 per cent mirroring the free fall in global markets after last Friday's statement by US Federal Reserve chairman Jerome Powell that he would have to continue to hike rates sharply for some more time to tame inflation that is trending at a four-decade high.
Accordingly, the Sensex fell 1.46 per cent to 57,972.62 and the Nifty slipped 1.40 per cent to 17,312.90. The new high Nifty target comes within two weeks of the agency sharply revising down the index target (August 11) to 15,600 points by December, a 10 per cent correction from the July-end levels. And after a steep 10 per cent correction it had forecast in June for the Nifty at 14,500 points.
Both the revisions were based on the massive sell-off that FPIs (Foreign Portfolio Investors) did in the market, pulling out over USD 29 billion between January and July. But since then the FPIs have pumped in over Rs 44,000 in August. The inflow came after a whopping Rs 2.46 lakh crore of outflow between October 2021 and June 2022.
The BofA report said its optimism comes from the country having only two state elections -- Gujarat and Karnataka -- among large states until November 2023, providing a window for continued reforms, and the economy is relatively well-placed among emerging markets. Another tailwind is the recent sharp correction in crude/commodity prices. Besides, the FII (Foreign Institutional Investor) ownership of equities at a multi-year low (19 per cent in June 2022 versus 21.5 per cent in December 2020) suggests FII positioning is low, the report said.
The optimism also comes from the likely fiscal surprises on stronger-than-estimated tax collections, 5G auctions and disinvestment revenue, along with more potential for continued reforms, among which power sector reform could potentially be the next large reform. If these factors cumulatively play out, Nifty can be at the higher end of our estimated target of 19,500 points. The report factors in the mild recession in the US and muted global growth. It also takes into account the impact of USD 3.1 trillion of quantitative tightening by major central banks by December 2023.On the negatives, the report sees a better and faster revival in Chinese growth can impact FII inflows into India, given that China's weight within MSCI EM has come off from 43.2 per cent in October 2020 to 31.1 per cent now, India has seen its weight increase from 8.1 per cent to 14.3 per cent during this period. This could shrink India's valuation premium which is at 84 per cent now as against MSCI emerging market now versus 33 per cent long-term average. Acceleration in geopolitical tension continues to be a key risk and in this eventuality Nifty may trend down to 17,000 points.