Nifty is ending Samvat 2078 on a negative note. From the last Diwali to now, the Nifty is down by over a percent.
This is disappointing but not surprising because of the strong headwinds the market had to endure. Aggressive rate hikes due to soaring, multi-year high inflation and a war between Russia and China kept investors on edge. Now, the risk of a long recession is looming.
It is difficult to predict how the domestic market may behave in Samvat 2079. On the one hand, there are talks of the resilience of the Indian economy; on the other, it looks unlikely that the domestic market will be unaffected by the global turmoil.
Rate hikes, geopolitical issues and macroeconomic prints will remain the key factors that will influence the market in the coming Samvat.
To some extent, rate hikes are factored into the market. However, if central banks, especially the US Fed, continue hiking rates for the most part of 2023, then it may cause serious trouble to the economy and the market.
If the war between Russia and Ukraine does not end or if a new similar crisis emerges, for example, a major war in Taiwan, then the market may witness a perilous capitulation.
"The factors that will drive the Nifty moves during the coming Samvat include global growth (or recession), peaking of inflation and interest rates, resurrection of risk appetite, restoration of supply chains through the globe, Union Budget provisions (the last one before the next general elections) and coming back of therural economy," said Deepak Jasani, Head of Retail Research, HDFC Securities.
Major themes for Samvat 2079
Despite all uncertainty, analysts have predicted the major themes for the coming Samvat. Take a look:
Analyst: Vinod Nair, Head of Research at Geojit Financial Services
Major themes will be to invest in stocks and sectors which are less elastic to inflation because the world is expected to see high inflation in 2022 and 2023 affecting corporate profits and household demand.
Strong service providers, staple businesses, companies in a high growth cycle, a steady source of raw materials (no supply issue), and low leverage will be the investment areas.
Value buying will be the crux of the investment cycle because expensive stocks cannot perform well in an inflationary & rising interest rate environment.
"We foresee opportunities in sectors like IT, pharma, FMCG, telecom, gas, and private banks. Broadly, we like consumption, green initiatives (like solar, wind, hydropower, hydrogen, and battery), speciality chemicals, and manufacturing. The idea is to invest in non-inflationary growth," said Nair.
Analyst: Sandip Raichura, CEO of Retail Broking and Distribution & Director, Prabhudas Lilladher
The broader themes that are likely to dictate the course of Nifty from this Diwali to the next one are auto, capital goods, IT, banking, telecom, consumer discretionary, and hospitals, said Raichura.
Analyst: Rameshver Dongre, Research Analyst - Equity Research, CapitalVia Global Research
Dongre believes the financial industry, especially banking, will do admirably in the coming Samvat. "Banking is a strong industry to invest in because it is anticipated that credit growth from 6% to 8.20% would likely reach double digits, which will help Nifty keep up its upward trend," said Dongre.
Nifty level prediction for next Diwali
It is futile to predict the level of Nifty for the next year when there is so much uncertainty. This is why analysts have mixed views on this.
Nair of Geojit Financial Services has a base target of 19,000 on a one-year basis, valuing the index at its long-term average.
He said a further upside in valuation will depend on the outcome of the global equity market.
"It will be a challenge for the domestic stock market to perform in a fragile global market. India is expected to outperform the rest of the world. However, a lot will depend on the trend of global inflation, recessionary pressure, supply issues and monetary policy. However, we expect the next year to be better than 2022 for the domestic stock market," said Nair.
Raichura of Prabhudas Lilladher is bullish on Nifty.
"I am positive on the broader market and expect the Nifty to reach 20,936 by next Diwali," said Raichura.
"We estimate Nifty earnings per share (EPS) at 855.2 and 963.4 and introduce FY25 EPS at 1,069.2. This shows a growth of 12.1%, 12.7% and 11% for FY23, FY24 and FY25, respectively. Our estimates are 3.5% and 5.6% and 8.3% lower than consensus EPS estimates," said Raichura.
Raichura pointed out that Nifty is currently trading at 19 times one-year forward PE which is a 7.8% discount to the 10-year average of 20.5.
"In the base case, we value Nifty at the last 10-year average PE of 20.5 times on September 2024 EPS of ₹1,016 and arrive at September 2023 Nifty target of 20,936 (20,057 earlier)," said Raichura.
"In the bull case, we value Nifty at a 10% premium to 10-year average PE (21.5 times) and assign a target of 22,918. (22,063 earlier). In bear case, we value Nifty at 20% discount to 10-year average and arrive at a target of 15,800 (16,046 earlier)," Raichura said.
Contrary to this optimism, Jasani of HDFC Securities believes Nifty may find it difficult to scale new highs beyond 18,300 in the first few months of the coming Samvat. Post the Budget, however, another attempt may be made at reaching new highs, he said.
Sunil Nyati, Managing Director at Swastika Investmart believes that the Indian market is consolidating and it may again start to rally as our fundamentals are strong.
"If we talk about levels, Nifty has the potential to test the auspicious mark of 21,000 and Sensex can test the 70,000 level by next Diwali, if the global market remains supportive," said Nyati.
"However, we are still in an uncertain global environment that may continue to cause volatility. Therefore, 19,000 and 64,000 are the conservative targets for Nifty and Sensex, respectively, if the bear phase in the global markets stays longer," said Nyati.
G. Chokkalingam, Founder & Head of Research, Equinomics Research & Advisory, believes that the outlook for the short-term and long-term domestic markets looks promising.
"By the next Diwali, the Sensex may give at least a 15% return. The smallcap index might outperform the broad indices as investors continue to pour into the markets," said Chokkalingam.
"What can go wrong is any possible major war in Taiwan or both OPEC and Russia holding on to severe cuts in production of crude oil till December 2023 irrespective of any concern for the possible crisis in their economies," Chokkalingam said.
Disclaimer: The views and recommendations given in this article are those of individual analysts and broking firms. These do not represent the views of MintGenie.