BofA Securities on Tuesday cuts its Nifty target to 16,000 from 17,000 earlier, on the back of Interest rate hikes in the US; inflation worries; and a recent off-cycle rate hike by the RBI.
The brokerage house also said in a negative scenario, the Nifty's valuation multiple can shrink to 15.8x (LTA) with its target at 13,700 points, implying a 15 per cent downside from current levels.
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.
"We expect front-loading rate hikes in the US with 50bp hikes in June and July likely to follow the 50bp hike in May; inflation beats (BofA CPI of 6.8 per cent YoY in FY23 vs RBI's 5.7 per cent) and rate shock (recent off-cycle 40bps hike) in India,” BofA said in a recent report.
Any easing of volatile crude prices, a turnaround in foreign institutional investment (FII) flows and bottoming of the Indian rupee could be an upside risk, it said.
The brokerage also turned more defensive and raised staples to an “overweight” view from “underweight”. It said autos, NBFCs and cement as major sectors exposed to the theme. It also highlights exposed stocks, including Mahindra & Mahindra, Hero MotoCorp, Escorts, Ultratech Cement and M&M Fin.
It also sees a ray of hope for the 2-wheeler industry, especially entry bikes with a 7-8 per cent growth after three consecutive years of decline.
Meanwhile, Foreign funds’ ownership in domestic equities fell to pre-COVID lows and hit a multi-year low of 19.5 per cent in March this year in NSE500 companies valued at USD 619 billion, according to BofA analysis.
FPI ownership is at its lowest level in three years, at 19.5 per cent in March 2022, compared to 19.3 per cent in March 2019 (pre-COVID period). The FPI ownership was at 21.2 per cent in March 2021, the second-highest on record.
