Expect Nifty to be around 17,500 by end-2022: Siddhartha Khemka

The biggest concerns for the Indian equity market currently are raw material inflation, surge in energy prices, chip shortage, monetary tightening, aggressive rate hike and geopolitical issues, says Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services. He, however, adds that even as weakness might persist in the market due to inflationary pressures, it is unlikely that the markets would enter a bear market. Excerpts: 

What is your Nifty target for end-2022? 

17,500. 

The Indian benchmarks are down around 10 per cent from their highs touched in October last year (they were down 18 per cent till recently). Do you think Indian indices can enter a bear market with a fall of 20 per cent or more? 

Equity markets over last six months have been engulfed with multiple challenges. The biggest concern has been high inflation and to control that – central banks globally have taken aggressive rate hike approach. This may impact the economic growth in the near term and also there is some chatter of a possible recession in US next year. However, there are several positives helping the Indian market. According to IMF, India’s GDP growth would be the highest among the global economies in 2022-23. Also, the oil prices have started correcting meaningfully and is down ~20 per cent from its recent peak to around $100/bbl while the other commodity prices have plunged sharply by more than 30-40 per cent from their peaks, which is providing some relief to the inflationary pressures. Amidst the adverse and volatile global environment, earnings delivery would hold the key for the market direction. Till the inflationary scenario persists, weakness might persist in the market but as of now Nifty looks unlikely to enter a bear market. 

Has the Indian stock market bottomed out? If not, then if you have to put a number or a range for Sensex/Nifty bottom, then what that would be? 

The global as well as Indian inflation data would continue to drive the equity market direction in the near term. However, the recent fall in commodity prices has given some respite. We believe unless there is a sharp spike in global commodity prices are any new negative surprise for markets, in the near-term bottom it seems that Nifty has bottomed out around 15,000 – 15,200 zones. 

If you had to pinpoint 3-4 key concerns for the markets, what would those be? 

Major concerns that are worrying the market are raw material inflation, surge in energy prices, chip shortage, monetary tightening, aggressive rate hike and geopolitical issues. 

Are we still in a long-term bull market with the ongoing downswings only technical corrections? 

Yes, we believe that the long-term bull market is intact and what we are currently undergoing are just short-term corrections. Equity market returns tend to mirror earnings growth in the long run. Nifty delivered 10 per cent CAGR return over FY97-20 reflecting 8 per cent earnings growth. Over FY20-FY22, earnings grew at 25 per cent CAGR which led to 43 per cent CAGR in Nifty returns. Going ahead, earnings are expected to grow at 17 per cent CAGR over FY22-24E. This is following strong GDP growth expectation for India. RBI has pegged the growth at 7.2 per cent/6.3 per cent for FY23/FY24, while IMF forecast 8.2 per cent/6.9 per cent growth making India the fastest growing economy in the world. The higher growth reflects government’s pro-reform strategies. The Union Budget 2022 too clearly laid out capex driven plans with the thrust on sustaining the economic growth through spending across infra ecosystem. 

FPIs have sold nearly $34 billion in nine months. Would the FPI selling continue at the same pace or you expect some sort of reversal or reduced pace of selling? 

FII selling might reverse by end of H1FY23 once the full impact of inflation plays out on corporate earnings. Secondly by that time, monsoon performance and its impact would be known to the market. H2FY23 also marks the start of festive season which could bring the demand back and revive the economy. Inflation might also peak out by that time while Central Banks might get over with the aggressive rate hike cycle. All these factors can lead to FII flows returning back. 

Domestic institutional investors and retail investors have been providing much support to the markets at a time when FPIs have been selling significantly. You expect that trend to continue or does the ongoing downswing have the potential to affect such inflows as well? 

In May’22, DIIs posted the highest inflows since Mar’20 at more than Rs 50,000 crore followed by Rs 47,000 crore inflow in June’22. Investors continue to invest in MFs, either through lumpsum route or in the form of SIPs with latter flows remaining strong at Rs 12,000 crore in May’22 – a ninth consecutive month of Rs 10,000 crore plus investment in SIPs. This has lent huge support to our market and made Nifty performance quite resilient as compared to global markets despite so many concerns. We expect that equity markets would continue to attract the Indian household savings as they offer much better return potential. SIPs have been a major factor supporting this trend which we should only increase with the expected strong growth in Indian economy going forward. 

If you had to pick 3-4 sectors with a medium-term investment horizon, which would those be? Also, sectors to stay away from. 

Auto, banking, FMCG and retail are some of the sectors which can be looked at from medium term perspective. Metals is one sector which can be avoided. Metal prices have seen sharp decline on account of fear of fall in demand amid uncertain global environment. Additionally, the imposition of steel export duty by the Indian government, to step up domestic availability, has only intensified the pain for metal companies. The weakness is likely to continue over next few months at least. 

Where do you see the Nifty by end-2025? 

25,000.