(Reuters) - India's benchmark Nifty 50 index will rise roughly 5% next year, which would be its slowest growth in 5 years, BofA Securities estimated, but also said Indian stocks were a good bet if a global recession struck.
BofA Securities expects the bluechip index to close at 19,500 points next year, while continuing to be volatile and trade between 17,000 and 20,000 levels for the year.
The Nifty 50 index is up slightly more than 7% at 18,584 so far in 2022, after three straight years of double-digit growth. This year has also been volatile with the index swinging between a low of 15,183.40 to a record high of 18,887.60.
BofA Securities advised buying any dips at around 17,000 levels, saying India's economic growth and equities are less impacted during a recession and recover faster after one.
"Indian markets deliver much higher returns against the U.S, 12 months post a recession," BofA Securities said, based on an analysis of the past three U.S. recessionary cycles.
Even valuations are unlikely to contract below the long-term average, said BofA, as domestic investors could see $20 billion in inflows from pension, provident, insurance funds and systematic investment plans.
And with foreign institutional investors (FII) ownership of Indian equities at a multi-year low of 18% now, the potential for incremental outflows from FIIs is limited, it added.
In fact, there could be inflows into emerging markets as the U.S. Federal Reserve could be forced to start cutting interest rates early if there is a pronounced downtrend in consumer price inflation, BofA Securities said.
BofA analysts remain overweight on sectors like financials, industrials, staples, utilities, metals and cement, and underweight on IT, healthcare, consumer discretionary and autos.
Meanwhile, Samir Arora, founder and fund manager at Helios Capital, expects Indian equity markets to revert towards a long-term trend of 10%-15% returns on average in rupee terms next year.
