(Reuters) - India's bluechip Nifty 50 index will end at around 18,000 points this year, about 5.5% higher than current levels but roughly flat with end-2022, as company earnings will be hit by high rates among other factors, BofA Global Research said.
BofA cut its year-end target for the Nifty by 8.3% to 18,000, implying a 0.6% drop for the year after seven straight years of gains of 3%-29%, and underperforming other emerging markets and debt, the brokerage said in a note on Monday.
The Nifty has fallen about 6% so far this year to just below 17,100 points and BofA Global expects the index to trade between 16,000 to 18,000 for the rest of the year due to the volatility unleashed by the global banking crisis.
Indian companies' earnings growth estimates for the next two fiscal years could be halved due to tightening U.S. monetary policy, warmer weather affecting the recovery in rural demand, peaking urban demand and rising deposit rates, analysts led by Amish Shah said.
High-risk sectors such as consumer, telecom and information technology could underperform the Nifty, said Shah, continuing to favour industries with a capex upcycle such as financials, industrials, cement, steel and autos.
BofA also expects the rate of foreign institutional investors (FII) outflows to slow down, saying that while FII's bullish position on India is at multi-year lows, it is unlikely to contract rapidly as it expects the country's economic performance to hold up well in a global slowdown.
"We estimate $20 billion of passive domestic inflow via provident/pension/Insurance funds and SIPs – mostly invested in Nifty/Sensex ETF – could provide support to large caps," Shah said.
In case of a recession, BofA still expects the Indian economy to fare better and rebound faster than the U.S. economy.