scorecardresearchWill a hawkish Fed make 20k a distant dream for Nifty? Here's what top analysts say

Will a hawkish Fed make 20k a distant dream for Nifty? Here's what top analysts say

Updated: 16 Dec 2022, 08:26 AM IST
TL;DR.
Rate hikes and the resultant recession in the US have been the biggest worries for the markets. For an emerging market like India, Fed hikes are a major blow as they trigger foreign capital outflow. Moreover, after Fed hikes, the difference between interest rates in the US and India narrows which affects the currency trade negatively.
The hawkish Fed is bad news for the Indian market.

The hawkish Fed is bad news for the Indian market.

Mirroring the trend in global peers, Nifty ended with a deep cut on December 15 after the US Fed stated the war against inflation was far from over and more hikes were coming.

The index ended 1.32 percent lower at 18,414.90, slipping away from its all-time high of 18,887.60 which it hit on December 1.

The US Fed raised interest rates by 50 bps on December 14 and said that rate hikes would go on unless the central bank was convinced that inflation was back to its 2 percent goal.

Rate hikes and the resultant recession in the US have been the biggest worries for the markets. For an emerging market like India, Fed hikes are a major blow as they trigger foreign capital outflow. Moreover, after Fed hikes, the difference between interest rates in the US and India narrows which affects the currency trade negatively.

The hawkish Fed is bad news for the Indian market.

Is 20k a distant dream for Nifty now?

Despite concerns over the Fed hikes, analysts are positive that the 20,000 mark is not very far because of its economic resilience.

As Mint reported, the World Bank on December 6 raised India’s economic growth forecast for FY23 to 6.9 percent from its October estimate of 6.5 percent citing the economy’s resilience in the face of the challenging external environment and the September quarter performance. However, it lowered its India growth forecast for the next fiscal to 6.6 percent from 7 percent made earlier.

In its latest India development update titled ‘Navigating the Storm’, the World Bank said while the deteriorating external environment will weigh on India’s growth prospects, its economy is relatively well-positioned to weather global spillovers compared to most other emerging markets.

Fed's move will weigh on market sentiment and can trigger a correction but a deep fall is unlikely. Nifty can hit the 20,000 mark as early as February 2023.

"We are more convinced that while a Fed pause could come by mid-2023, a cut is unlikely before 2024. This move and stance by Fed could trigger a small correction in the Indian market. We don't see a case for deep correction in our markets given the drop in crude and commodity prices and likely margin expansion for many sectors like cement, consumer, auto and speciality chemicals. Nifty should cross, the 20,000 mark around Union Budget i.e. February 2023,” said Hemang Jani, Head of Equity Strategy, Motilal Oswal Financial Services.

Some analysts point out that the Indian equity market has already started showing divergence with the US markets and Fed rates.

G Chokkalingam, Founder & Head of Research at Equinomics Research & Advisory underscored that since march 17, 2022, the US Fed increased the benchmark interest rate cumulatively by 400 bps. During this period, the Indian markets have given a 10 percent return since March 17 2022 while the S&P 500 fell 8 percent in the same period.

"Amid lower inflation amid fall in commodity prices, India is maintaining the fastest GDP growth among major economies which would help the domestic market to perform well till mid-2023. Nifty could achieve 20,000 and Sensex 67,000 by mid-2023," said Chokkalingam.

"Until mid-2023, the domestic market is likely to maintain positive momentum, with significant volatility, but one can expect around 7 percent return by mid-2023. The only possible risk is any rally in crude oil prices beyond $100 a barrel or any possible major battle on the border are the risks," Chokkalingam said.

The decoupling of the Indian market is underpinned by its economic growth. Unless growth momentum slows due to domestic or global factors, it does not appear the Indian market is staring at a major risk at this juncture.

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services believes Nifty can achieve the 20,000 mark by mid-2023.

"The Indian market, though not completely decoupled from the mother market US, has been charting a slightly different path exhibiting surprising resilience even in the face of global weakness. This is due to India’s superior growth and earnings prospects, going forward. However, high valuations and rising interest rates are likely to restrain the ongoing rally. The level of 20,000 is not achievable in the short term but very much by mid-2023," said Vijayakumar.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of MintGenie.

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First Published: 16 Dec 2022, 08:26 AM IST