Foreign brokerage Jefferies said Nifty is likely to retest 15,500 level soon, as global macros and valuations concerns catch up with the Indian market. The NSE benchmark is down just 2 per cent year-to-date despite global headwinds. Jefferies said the 50-pack index is now trading 40 per cent above its pre-Covid peak and that its valuation at 18.4 times PE is 5-15 per cent above the pre-Covid average.
This is even as the RBI’s repo rate and the benchmark 10-year bond yields are now 75-100 basis points above pre-Covid levels, it said.
The brokerage believes that a deterioration in global macro and valuations concerns would catch up with Indian markets, even as earnings could see some support in September quarter from an early festive
season.
Also Read: Vijay Kedia stayed put, Dolly Khanna upped stake in this auto component maker in Q2
Down 6.9 per cent over its 52-week high of 18,604.45, the NSE barometer is in the fourth wave of correction since hitting its peak in October 2021.
The last correction, from April to June 2022, saw Nifty correcting 15.3 per cent. The second correction (January-March 2022) had seen Nifty falling 13.4 per cent while the first correct (December 2021-January 2022) saw the NSE benchmark falling 10.1 per cent.
“Historical analysis suggests that domestic flows slow down when trailing 12-month market returns turn negative. We are currently at that stage and would be interesting to watch out for the flows trend. Additionally, property markets have started to give double-digit returns after being dead over 2013-2020 period and hence possibility of some diversion of flows is possible,” it said in an October 3 note.
Jefferies said several Outperformers in a rally since October 2021 market peak, have tended to underperform in the subsequent corrections; and vice versa. autos, industrials, realty and materials outperformed in the June-September 2022 rally and could be vulnerable, it said.
NBFCs could incrementally face challenges as the funding cost pressures potentially undermine their position vis-a-vis banks, Jefferies said.
“Barring healthcare and FMCG (consistently defensive), the sector performance has varied during the periods of corrections. The same should continue in this correction as well. IT services would be vulnerable as concerns could emerge on revenue growth outlook. Select PSUs like NTPC, Power Grid should serve well as defensive. But the undisputed defensive is obviously cash. We raise 3 percentage points of cash in the model portfolio by reducing weight on financials,” it said.