With Nifty target of 19,250, BNP Paribas remains ‘cautious’ on Indian equities

Market


Global brokerage BNP Paribas has introduced its Nifty index target of 19,250 for March 2024 with overweight (OW) on Financials, IT and Telecom, while it remains underweight (UW) on Industrials and domestic consumption space (Staples, Discretionary/Retail and Auto).

“Consensus is building a strong earnings recovery across sectors, ignoring a weak macro backdrop. Valuations look rich and at the current differential in yields of bonds and earnings, market returns have historically been negative over the next year,” the note on India strategy for 2023 outlook stated.

The brokerage house has retained its cautious view on Indian equities. “The lag effect of interest rate hikes should weigh on global growth even as the worst of inflation seems behind. China’s reopening and an increase in term deposit rates are likely to impact the flows into Indian equities,” it added.

BNP Paribas continues to track the bond yield vs earnings yield gap closely and at the current gap of 2%, have historically seen negative market returns over one year. India’s valuation premium to Asian peers has come off from the peak but remains well above historical average. Since 2015, as interest rates moderated, the brokerage highlighted that a large P/E expansion in the Indian market has been seen and it thinks that some more time correction is likely.

With inflation concerns easing, global and Indian macro outlook has improved slightly. However, BNP Paribas thinks the lag effect of sharp interest rate hikes of 2022 should weigh on global growth outlook in 2023, with most economies likely to see a deceleration in growth. India has been among the top-performing equity markets worldwide in 2022, helped by strong domestic flows and a return of foreign flows in 2H. 

“For 2023, we see a risk of FII outflows on China’s reopening and a moderation in domestic inflows as banks raise interest rates. We continue to find the market valuations expensive, based on various metrics we track. We retain our cautious view on the market and introduce our NIFTY index target of 19,250 for March 2024,” it added.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.


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