With Nifty target of 19,250, BNP Paribas remains ‘cautious’ on Indian equities

“The consensus is building on a strong earnings recovery across sectors, ignoring a weak macro backdrop. Valuations look good and given the current differential between bond yields and earnings, market returns have historically been negative next year,” said the note on India’s strategy for 2023 outlook.

The brokerage house has maintained its cautious stance on this Indian Equity, “A hike in interest rates should impact global growth even as the worst of inflation is seen. Re-opening of China and increase in fixed deposit rates are likely to impact flows into Indian equities.”

BNP Paribas continues to closely track the bond yield versus earnings yield gap and has historically seen negative one-year market returns at the current gap of 2%. India’s valuation premium to Asian peers has come in below the peak but well above the historical average. Since 2015, as the interest rates softened, the brokerage highlights that the Indian market has seen a huge P/E expansion and thinks that there is scope for some more correction.

With inflation concerns easing, the global and Indian macro outlook has improved slightly. However, BNP Paribas believes that a sharp 2022 interest rate hike should impact the global growth outlook in 2023, with most economies likely to see a deceleration in growth. India has been among the top performing equity markets globally in 2022, helped by strong domestic inflows and return of foreign inflows in 2H.

“For 2023, we see risks to FII outflows as China reopens and domestic inflows taper off as banks raise interest rates. We find market valuation to be costly based on the various metrics we track. We maintain our cautious view on the market and project our Nifty index target of 19,250 for March 2024.”

The views and recommendations given above are those of individual analysts or broking companies and not of Mint.