Three Factors Could Drive Nifty 50 Up To 23% By End Of 2024, Says BofA Securities Amish Shah

Risk-reward tradeoff is skewed in India's on diminishing risks, strong macros and growing foreign flows, according to BofA Securities Inc.

"Our base case is Nifty at 23,000 by the end of next year, implying a 15% potential upside," the research firm said in a note. The worst case outcome suggests only a 6% downside and the best case pegs the potential upside at 23%.

The optimistic outlook is despite BofA's conservative earnings estimates, at 12% compound annual growth over the next three years to factor in slowing global macro next year. The consensus view is an annualised growth of 15%.

The risks associated with India are diminishing, and the outlook for positive factors is on the rise, said Amish Shah, head of India research at BofA Securities. Concerns around elevated crude prices, geopolitical uncertainties, increased yields in the U.S., and potential stimulus measures in China have either reversed or their current impact appears negligible, he said.

Earnings growth has remained robust with some upgrades, and the global macroeconomic environment is expected to be supportive for emerging markets, Shah said in an interview with NDTV Profit. "We do not think the volatility next year will be harsh, and do not think the corrections will be deeper".

Here are the reasons BofA Securities cited for its bullish view:

India's Macros Continue To Be Very Robust

Soft U.S. landing, Federal Reserve pivot and weak U.S. dollar is positive for FII flows for emerging markets, including India, especially as the country's macro continues to be very robust, according the research firm.

Crude Price Spike Has Zero Impact On Markets

Potential risks from China stimulus, U.S. hard landing and crude spike are either insignificant or transitory impact for India, according to BofA Securities.

Whenever the crude prices have spiked up, the markets had a zero impact, Shah said.

"The impact of weightage of energy stocks on Nifty has come down over the years. Most companies that get impacted from crude have learnt how to pass it on...," he said. "Whenever crude spikes more than 20%, the earnings impact on Nifty is almost close to 0%."

"India has become a large economy and crude is not a big factor in the current account deficit anymore."

Domestic Flows Are Making An Impact

BofA estimates $28 billion of domestic passive flows next year, which alone are more than sufficient to offset even historic high FII outflows, as well as peak primary market issuances, it said.

If the outlook for global economy proves incorrect, resulting in a hard landing and $16 billion outflows, India's domestic inflows would effectively offset the outflows, thereby limiting the downside, Shah said.

"Cleary domestic flows are making an impact," he said.

2024 Outlook

With the continuation of political stability, a renewed momentum in reform efforts is anticipated, according to Shah.

The positive performance of India's macroeconomic landscape persists, and an upward revision of the economic growth target has been made by the Reserve Bank of India.

"I argue that valuations could expand further...especially in the mid- and small-cap space," Shah said.