Nifty Earnings Could See 50% Cuts In Two Years, Says BofA Strategist Amish Shah
That will make the valuations of Indian markets look slightly more expensive than they are currently, says Shah.
Bank of America strategist Amish Shah continues to see risks to FY24 and FY25 Nifty earnings growth estimates of 18% and 14% respectively. These could be cut by half, he goes on to say.
As a result, the cumulative earnings growth will not be 33%, but a weak 17%, which would make the valuations of Indian markets look slightly more expensive than they are currently, Shah said.
According to him, BofA sees risks to earnings mainly on:
Fed’s stance of higher (rates) for longer.
Likely hot summer affecting rural recovery.
Likely peaking urban demand.
Higher interest rates affecting levered sectors.
According to BofA's U.S. economics team, the Fed will continue to hike rates (5.25-5.5% terminal rate by June), despite the recent credit events in the U.S. The first of the rate cuts would come in only in 2024, Shah said.
This could continue to weigh on the U.S. and Indian equity markets and is an incremental risk for external facing sectors, such as information technology, where BofA is bearish, Shah said.
They principally see risks of earnings cuts in sectors such as communication services, discretionary, staples (on lift expectations, demand slowdown) and select auto stocks.
Apart from this, BofA said that 21% of the Nifty sales are linked to the international factors directly (EXIM) or indirectly (Crude oil), which could weigh on the external facing sectors.
