ICICI Direct sees Nifty hitting 21,200 in 2023 led by IT, banks; Nifty Bank to breach 52k levels

Domestic brokerage ICICI Direct sees headline equity index Nifty hitting the 21,200 mark in 2023 led by heavyweight sectors like banking and IT.

The brokerage noted that it expects volatility to remain subdued in thenear term extending the decoupling from global peers. It further sees foreign portfolio investor (FPI) inflows to remain strong due to the continued outperformance of Indian markets.

"Historically, volatility has been in a downward trend for a prolonged period of time, which, in turn, has been one of the best return periods for the Nifty. While the low volatility could be a cause for concern due to lack of risk perception, historical evidence suggests that low levels of volatility may remain for an extended period of time," stated the report.

It also pointed out that despite US VIX moving higher, India VIX failed to sustain at higher levels suggesting inherited strength in Indian markets. Since 2021, India VIX has failed to sustain above 26 and remained in a declining trend, it noted. The brokerage expects volatility upsides to be limited in 2023 and remain on the lower side.

Return of FPI money

Equity markets witnessed a return of foreign funds since July 2022. They turned net buyers of almost ₹84,000 crore. The brokerage informed that apart from tech and oil & gas, almost every sector saw inflows. Even the technology sector started witnessing flows post-September, which is the highest ever seen in more than three years, it added.

After one year of continued outflows, the BFSI space has started witnessing fresh flows in the last two quarters where banking was the major beneficiary. ICICI expects the same trend to continue in 2023 as well.

Overall, FIIs had withdrawn ₹2,56,000 crore from the domestic equity markets between October 2021 and June 2022. The financials and technology space along with oil & gas saw a cumulative outflow of ₹186,000 crore in this period while consumer services were the only sector where inflows were seen during the same period.

Nifty Bank to hit 52,000 levels in 2023

ICICI predicts that Nifty Bank will move beyond 52,000 in 2023 with HDFC Bank leading the index.

Banking and financial services together gained almost 11 percent in CY22. Financials underperformed banks while private and PSU banks were the leaders with a gain of more than 22 percent in 2022 YTD.

The brokerage informed that historically, the Bank Nifty has seen gains of more than 60 percent after surpassing its previous highs. We have seen it in 2013 and 2018, it added.

HDFC Bank is set to lead the index with almost 30 percent weight. A further increase in weight is expected after the merger of the HDFC twins, noted the brokerage.

"The Bank Nifty has been the major driver of the Nifty since 2008 as visible through the price ratio. We have seen intermediate corrections of 25-30 percent in the ratio followed by outperformance by 50-70 percent as seen in 2013, 2015 and 2019. Henceforth, we believe that a similar outperformance trend should be seen in the coming months," forecasted the brokerage.

Nifty IT to recover towards 36,000

Nifty IT has seen correction to the tune of 25-30 percent in 2011, 2016, 2020 and 2022. In all past instances, after the correction, the index has consolidated or gradually moved towards previous highs, stated the brokerage.

In the current leg of correction, the brokerage highlighted that most of the midcap IT stocks have witnessed the highest short additions in mid-2022. Currently, the leverage has declined significantly across the sector, it added.

The brokerage feels that the ongoing move is part of the broader consolidation and expects the sector to stage a recovery in CY23 towards 36,000.

"The technology space was the major laggard of the year and witnessed significant shorts across the sector in the first half of the year. However, in the consolidation seen after June, significant closure was observed among most technology stocks. Only a few stocks like Wipro are still holding high shorts. The OI among heavyweights like TCS and Infosys has returned to normal levels. Hence, we do not expect further pressure among these names and expect recovery," explained the brokerage.

Top picks

The brokerage has picked Bharat Forge (upside 28 percent), Hindalco (upside 26 percent), LTIMindTree (upside 31 percent), MCX (upside 30 percent), State Bank of India (upside 26 percent) and Sun Pharma (upside 26 percent) as its top quant picks for 2023.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.