Mumbai-based broker Emkay Global says India’s stock markets will not go much further for the whole of calendar year 2023. Emkay says benchmark indices Nifty and Sensex may gain less than 8 per cent from the current levels by the end of next year. The brokerage has accorded a target of 19,500 for Nifty and 64,500 for Sensex. According to Emkay, India’s market valuations are stretched, compared with other emerging markets.
“Dollar index, the depth and amplitude of a possible global slowdown/recession, and the timing of the Fed’s pivot remain key factors that may impact markets. The RBI seems to not be too restrictive and will probably be following the Fed’s moves. The period for which it stays on pause and eventually starts cutting rates will be keenly watched by the markets,” Emkay said in its report highlighting the major cues that investors and traders would follow.
Emkay said Nifty’s current price to earnings (PE) was at 11 per cent premium to the 10-yr average (17.2x). Hence, it said that valuations are not cheap relative to own history, bond yields and MSCI Emerging Market index. Other headwinds include geopolitical risks, spike in crude prices and higher interest rates for India and globallly for longer duration. It added some risk to FY24 corporate earnings — global growth slowdown, lagged impact of monetary tightening and waning pent-up demand. Still, it says there was only limited downside risks to FY23 earnings.
TINA factor
As per Emkay, Nifty is currently at a 86 per cent P/E premium to the MSCI-EM index vs 10-yr average of 45 per cent. “Notwithstanding further outperformance of MSCI-EM index relative to Nifty, we see higher than historical P/E premium being sustainable based on improving ‘TINA’ factor among EMs, helped by India’s GDP growth edge and Chinese slowdown, structural reduction in India’s equity risk premium aided by sustainable domestic equity flows and potential inclusion of G-Sec bonds in the global bond indices in the future.”
Nirav Sheth, CEO - Institutional Equities, Emkay, said, “Movement of the dollar index continues to be a concern due to the sheer impact it has on multiple things. We expect a further instalment of rate hike by the US Fed and the RBI thereby strengthening the respective currencies. We expect RBI to go on a long pause by the second quarter of 2023.”
According to Sanjay Chawla, Head - Institutional Research, Emkay, a capex-intensive budget by the government may spur investment but the global and domestic growth uncertainties may act as an impediment. “Given the current scenario, we see Nifty-50 fair value of around 19,500 by end-CY23; we expect aggregate profit growth of Nifty-50 to be fairly resilient at around 15 per cent in CY23,” he said.