Daily Voice | These factors can lift Nifty to 22,200 by December, says Neeraj Chadawar of Axis Securities

Do you think the RBI will be a non-event for the market?

Oil prices and some vegetable prices have increased since the previous Monetary Policy Committee meeting. The RBI is expected to maintain the current rate in the August MPC meeting.

Also, they are likely to maintain the “withdrawal on accommodation” stance. The market will look at the view of the RBI on the economy and revise estimates on the growth and inflation numbers.

Do you see any change in the inflation forecast by RBI?

Food inflation increased from the last MPC meeting, led by higher vegetable prices. However, the core inflation remained moderate. Given the risk of El Nino going forward and rising crude prices, RBI could likely upward the inflation forecast for FY24.

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Which is the one sector that is at the top spot in your portfolio and why?

FY23 was a robust year for the BFSI sector as most of the Banks/NBFCs under our coverage remain well-placed to capitalize on growth opportunities in FY24 as most banks have guided for healthy loan growth going forward.

Outlook on the asset-quality front remains encouraging, with the expectations of slippages moderating and recoveries remaining healthy, thereby supporting the asset quality improvement across the sector.

We believe the growth momentum is likely to stay healthy as pick-up visible in the Retail and SME lending seems sustainable. Moreover, corporate loans have also shown sharp improvement.

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Apart from BFSI, the theme ‘Growth at a Reasonable Price’ continues to look attractive because of the domestic play of good Rabi season payout, the cool-off in commodity prices and inflation, rural recovery, and the expectation of margin recovery in the upcoming quarters.

Are the PSU banks cheaper on the valuations front? If yes, then should one buy it or better prefer private banks?

Currently, the entire banking sector is in better shape in terms of balance sheets than pre-covid levels. A lot of clean-up has already been done in the last couple of years, and most banks are enjoying the profitability trends. The return ratios, especially the ROE (return on equity) of PSU banks, have significantly improved in the last couple of years, and expectations are building for ROE expansion in the next couple of years.

The double-digit credit growth, improved balance sheet, and superior returns ratios make a good investment case for large-cap PSU banks even at current valuations for the next 12-18 months.

Do you still expect more run-up in Indian equities after current ongoing consolidation?

We continue to believe in the long-term growth story of the Indian equity market, supported by the emerging favourable structure, as increasing Capex enables banks to improve credit growth. We foresee NIFTY EPS to post growth of 16 percent/13 percent in FY24/FY25. We maintained our December 2023 Nifty target at 20,200 by valuing it at 20x on December FY24 earnings.

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In the bull case, we value Nifty at 22x, which translates into a December 2023 target of 22,200. Our bull case assumption is based on the overall reduction in volatility and the success of a soft landing in the US market. Currently, we are near the peak of the rate hike cycle and may expect only one rate hike in the US market before the US FED takes a pause. If the market sails through the next one or two quarters smoothly, we would likely see the next level of triggers along with money flowing to EMs. This, in turn, would increase the market multiple.

Are you betting on NBFCs given the good capital ratios they have?

We are near the peak of the rate hike cycle, and the expectations are building that RBI could take a rate cut around mid of 2024, still dependent on the evolving data point and the interest rate scenario in the global market. So in this scenario, the worst margin pressure on NBFCs is behind us.

In the changing interest rate environment, any cut in the interest rates will translate into margin benefits for NBFCs. So at this juncture, well-capitalized NBFCs with solid management and a good credit book are a good bet for the next 12-18 months.

Do you expect new-age companies to turn profitable by the end of this financial year, considering the current improvement?

New age companies have specific challenges, and the degree of challenges varies from one tech company to another. Many companies are now focusing on profitability which is a significant positive. However, the consistency in profitability still needs to be seen. Given the focus on profitability, one can accumulate new age stocks with an investment horizon of more than 12-18 months.

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