BofA Securities slashes Nifty target by 2,100 points

Mumbai: Bank of America Securities has slashed its target on the Nifty for December to 17,000 from 19,100 earlier citing a faster interest rate hiking cycle by the US Federal Reserve. The brokerage prefers healthcare and staples with the market breadth likely to narrow and is 'constructive' on industrials and financials. It downgraded ratings on auto and IT to underweight.

BofA's Nifty target is about 2% over the index's closing level of 17,352.45.

"Fed/RBI hiking cycles since 1994, suggests market valuations could contract," said the brokerage in a client note. "That said, past cycles also suggest market downsides are blunted if supported by robust earnings growth: India is well placed and is supported by 'growth-focused' fiscal/monetary policies."

The Nifty target cut by BofA comes in the wake of growing expectations that the US Fed might embark on an aggressive monetary tightening spree to contain inflationary pressures. The brokerage expects the American central bank to increase a key policy rate seven times in 2022, starting from its meeting in March. In 2023, the Fed could raise rates four times.

"The key risk we highlighted in our year ahead was for a faster Fed hike/tightening cycle. This risk is likely to play out...," said BofA. "There are concerns around potential 50 bps (basis points) hike in March, 100bps by July and inter-meeting hikes, amongst others."

The brokerage expects the Reserve Bank of India to raise rates by 100 basis points by Mar 2023.

BofA said political stability is a key risk, while the market breadth is likely to narrow and volatility could rise. The brokerage is, however, bullish on the earnings growth of Indian companies.

"We believe India's corporate earnings could structurally outpace nominal GDP growth led by start/confluence of multi-year capex/credit growth/start-up cycles and 'growth-focused' fiscal/monetary policies," said BofA. "India's CY22 GDP/earnings growth are likely to be among best within EMs (emerging markets)."