Nifty scales all-time high: What could be the next target for the flagship index?

After a long wait and many ups and downs, flagship benchmark Nifty50 has formed a fresh peak, thanks to massive buying from domestic as well as foreign investors in recent months, as the Indian economy continues to show resilience.

In the last two months alone, the Nifty surged over 10 percent on the back of strong domestic macros, robust earnings growth, and sharp correction in oil prices. This comes at a time when other major stock markets in the world are nowhere close to their peak.

Analysts believe the rally in the Indian stock market is going to stay for a while now. They now see 10-15 percent upside from hereon in the next 12 months with short-term volatility due to global factors.

“All the ingredients are there for the Indian market to grow. My target would be 10-15 percent kind of upside for next one year,” said Sanjeev Hota, Vice President, Head of Research at Sharekhan.

The Nifty took about 13 months to create a new high. As of 2pm, The index traded at 18,600 after hitting a day’s high of 18,611. Indications from futures and options (F&O) markets are also positive.

Next Nifty Target 

Technically, the 18,500 level is emerging as the new support for the index. On the December-end contract, the 18,500 strike has seen accumulation of open interest. At the same time, 19,000 is emerging as the biggest hurdle with large call writing on this strike.

AK Prabhakar, Head of Research at IDBI Capital, sees 15 percent upside in the next 12 months from current levels, which puts the target in the vicinity of 21,400.

Goldman Sachs’s Sunil Koul has a relatively modest target of 20,500 (about 10 percent upside) by 2023-end as he sees some of the sectors to see moderation in growth as a high base effect comes into play.

Indian share markets have been buoyed by a stellar revenue growth in India Inc. On average, companies have seen mid-teen growth with banking and financials leading the charge. The cost pressure, which had plagued them for the last 2-3 quarters, are also abating that may help them improve their margins. The major reason for this is the declining trend in crude oil prices. Crude oil, which is used as raw materials in several industries, including chemical and paints, is down 37 percent from this year’s high in March.

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“The festive season this year witnessed a buoyant demand – being the first one without any restrictions post 2 years of Covid,” said Ajay Menon, MD and CEO, Broking & Distribution at Motilal Oswal Financial Services. “The buoyancy in demand is expected to continue with the onset of marriage season,” he added.

“Apart from this, bank credit continues to grow in late teens over the last few months and is expected to continue this uptrend with the pickup in capex from the second half of the fiscal. India is entering a big capex cycle, which would provide a leg-up to the overall economy.”

Earlier in the day, the Sensex hit an all-time high as well. The index peaked at 62,701.4. Analysts have also upgraded their target on the index. Morgan Stanley said it sees the Sensex at 68,500 in the next 12 months.

Sectoral Winners 

As analysts adjust their expectations on the index, they are also highlighting winners of the next leg of the rally going forward. According to them, banking, auto and defence sectors are most likely to outperform.

“Banking, especially PSU banks, and auto are my top picks,” said Prabhakar. “Now that prices of crude has come down so crude derivative stocks like tyres, paints and oil marketing companies may do well,”

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PSU banks, especially Bank of Baroda, Canara Bank and State Bank of India, have reported stellar financial performance with high credit growth. The fact that they have very high provision coverage ratio and bad loan levels are declining has also been a positive surprise. The market has, thus, rewarded these stocks in recent months as well.

Hota also said private and PSU banks are likely to outperform from hereon. “We are also positive on capital goods, defense, auto and auto ancillaries,” he added.

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