BofA trims year-end Nifty target to 17,500

BofA trims year-end Nifty target to 17,500

BofA Securities has cut the year-end base case target for the 50-share Nifty to 17,500 from 18,500 earlier, citing weakening macro, higher crude, rupee depreciation, global slowdown and China revival. This implies a 2.8% upside from current levels.

The trading range has been cut to 16,500-18,500 from 17,000-19,500 earlier.

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“The near-term higher crude, slowing global growth along with depreciating currency could create a downward spiral of macro risks. We see 40-bps upside risk to FY23’s budgeted fiscal deficit estimate of 6.4%. We see current account deficit too at 3% of the GDP versus 2.5% threshold, driven by uncomfortably high trade deficit and 16%/46% export/import growth YoY for the period from April to August. Thus, if crude and currency risks play out, they could deteriorate India macro and we see risks to capex upcycle thesis. Given this, we believe further earning cuts cannot be ruled out,” the brokerage observed.

The full effect of commodity price corrections on margins is unlikely in Q2 due to high cost inventory. EBITDA for Sensex companies is expected to contract 200bps YoY and expand 400bps QoQ on softer commodity costs. Overall, BofA PAT estimates remain conservative versus the Street and is 4% and 2% below consensus for FY23 and FY24, respectively.

The brokerage continues to favour domestic cyclicals such as financials and industrials and defensives such as utilities and healthcare.