Nifty targets, stock market rally: Why Bernstein, JPM, BofA, Citi, HSBC turn positive on India

With benchmark indices Nifty and Sensex rallying 5-6 per cent within a span of one week, investors are wondering whether the ongoing rally will sustain. Foreign brokerages are largely positive on domestic indices, especially on largecaps. They said momentum and quality may now outperform value stocks.

Bernstein said its positive view in the near-term remains intact despite the recent market run-up, supported by receding crude, yields support and flows. "We retain our trading buy - positive returns for the rest of the year view," it said.

The foreign brokerage said while the US mid-terms provided a long-missing spark to the markets, Trump's recent statement on 'Iran war being effectively over' furthers the momentum, it said.

BofA Securities said most investor queries at this point are around its sustenance. "We see scope for further 4.7 per cent returns for Nifty in line with our unchanged Nifty year-end target of 26,200, however, we do expect volatility especially on the back of emerging geopolitics, FED decisions and discussions around El Nino & the Eighth Pay Commission hike," it said.

BofA said it, however, continued to stay cautious on small and mid caps stocks.

Data showed Nifty is up 866.45 points or 3.56 per cent in the past five sessions. One Wednesday, it was trading at 25,214.70. Nifty is trading at 81,880.53, 4,623.08 points or 5.98 per cent for five sessions.
 
Bernstein said positive returns view in the near-term remains intact despite the recent market run-up, supported by receding crude, yields support and flows. We retain our trading buy - positive returns for the rest of the year view.

"With Nifty still trading at 18.3 times, (closer to averages), we still see room for valuation expansion on the back of improving earnings trajectory and consensus cuts now behind," BofA Securities said.

Citi has raised its target for the Nifty to 28,000 from 26,000 earlier.  The foreign brokerage cited a decent earnings outlook, lower oil price risks and potential flows into non-AI assets following the US midterm elections. The fresh target suggests 12 per cent potential upside over the prevailing level of 24,986.40.

Bernstein upped its December  Nifty target to 26,100 as global easing provides some valuation cushion. "While still rich, momentum should lend near-term support to valuations. Beyond that, weaker earnings, limited revisions and weak global positioning across trade, Al and energy
retain near term trading buy and a neutral view over the next 12 months," it said.

JPMorgan said oil-price relief creates a supportive backdrop for its factor positioning, favouring momentum and quality over value.

Since 2010, in months when oil fell by at least 5 per cent, momentum averaged a long/short return of 3 per cent and Quality up 2.2 per cent, while value lost 1.3 per cent, as its commodity-linked and cyclical holdings saw earnings weaken, it said.

HSBC, meanwhile, has upgraded India's rating to 'Overweight' from 'Neutral', citing resilient earnings and more reasonable valuations, while downgrading mainland Chinese equities to 'Neutral' from 'overweight' due to a lack of catalysts for a sustained re-rating.