Nifty may reach 18400 in March; Geopolitical Conflict, Commodity Prices, Inflation in Direct Markets | Interview

Bulls continued to dominate Dalal Street on Friday as the S&P BSE Sensex rose over 500 points or 0.92% to hit 57,300, while the NSE Nifty 50 index climbed above 17,100. Neeraj Chadavar, Head – Quantitative Equity Research, Axis Securities in an interview with Harshita Tyagi of FinancialExpress said, the ongoing Russia-Ukraine conflict, commodity price trends, inflationary direction and developments in the developed world will affect the Indian equity markets. .com. He said that Nifty can reach 18,400 in March 2023. Here are the excerpts of the interview.

Indian markets have been extremely volatile lately. It has gained momentum after touching a 52-week low. Should investors be cautious or buy now?

The US Fed raised interest rates by 75 bps at the July FOMC meeting, on an expected line, as all central banks are now focused on controlling the inflation scenario by front-loading rising rates. It remains to be seen how the sustainable demand scenario unfolds in the near future, but we may see inflation touch higher levels in the next few months and start seeing a moderation path in the next one or two quarters. The Fed also highlighted that monetary policy has tightened further and could slow rate hikes with the emergence of economic growth and inflationary dynamics. This brings some visibility to the trajectory of interest rates and could be a short-term positive for a riskier asset class like equities.

We believe the worst of FII outflows are behind us and the selling trend is likely to slow down in the coming month, and some moderation in outflows is already visible on 22nd July. Post-macroeconomic developments will continue to influence the market. Limit up to near term and market:

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– Ongoing Russia Ukraine conflict
– Commodity price trends including oil
– direction of inflation
– Development in the developed world

Considering these developments, we expect the market to perform in a limited range in the near future. Over the past month, we have seen a cool-off in volatility, although the current volatility is lower than the LTA, and a clear trend is likely to emerge only if volatility remains at lower levels for a longer period of time. We believe that the second half of the current fiscal will be less volatile than the first half. Investors should use this volatility to position the scatter in quality companies with a 12-18 month outlook where earnings visibility is high.

Is Nifty 50 down? What is the best Nifty position for the next 12 months?

We are tracking the % of stocks trading above 200 DMA in the NSE 500 universe. On June 22, we reached the level of 18% of the shares trading above the 200 DMA (nearly equal to the historical low). At that time the market was clearly in the oversold zone. From that level we have seen a sharp recovery in the market over the past month. Now 36 per cent of the shares are trading above the 200 DMA, which indicates that the market has moved out of the oversold zone. However, in the near term, markets will continue to be driven by macroeconomic data flows, and performance is likely to remain range-bound for at least a quarter until we see signs of moderation in the inflation print.

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While we continue to have a positive long-term outlook on the market, supported by a favorable structure emerging in the form of rising capex spending which is enabling banks to improve credit growth. In addition, boosting overall expenditure in the Union Budget 2022-23 will help drive broad-based growth in FY23. Strong earnings trajectory continues in the Nifty-50 universe, with FY2011/22 Nifty EPS rising 15%/37% to 534/734 respectively. The cumulative net profit of the NSE 500 universe for the last four quarters reached an all-time high (crossed Rs 9.5 lakh crore in Q4FY22). We maintain our Nifty 23 March target at 18,400 by valuing 20x on FY24 earnings.

We are halfway through the year 2022 and it has been a volatile journey for investors. What is your outlook for the markets for the rest of the year?

It is difficult to predict the short-term performance of the market, as most of the market volatility has eased over the past two-three months and most of the news flow has been priced in. Even in this volatile scenario, our market has outperformed most of the global markets over the past year. While the market trend is likely to remain limited in the near term due to India’s 90% correlation with the US market, it has corrected relatively little in comparison to many global markets. Keeping this in mind, we believe that even though the global markets as well as the Indian markets will decline, the intensity of this decline is likely to remain very low.

What are the key triggers and drivers for the stock markets to move forward?

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A normal monsoon brings hopes of strong festive demand. The cool-off seen in majority of commodity prices from the highs of 52w, further instils confidence in margin recovery for most corporates. We have seen a sharp improvement in the services PMI for June, giving confidence towards a strong recovery in economic activity in the post-Covid scenario. We believe that the services sector will outperform in the coming months, as it did in Q1FY23 (Q1FY11 and FY2012 were painful years for services due to the Covid 1 and Covid 2 wave) .

Q1FY23 was the first full quarter in the last three years in which we did not see any disruption in economic activity due to COVID. Keeping this in mind, home-oriented themes are more likely to deliver better performance going forward. In addition, the market will continue to watch the direction of oil and other commodity prices.

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