Indian markets likely to remain range-bound in the near term: Analysts

Indian markets are likely to remain range-bound in the near term amid global headwinds, suggest analysts. Rising interest rates, firm crude oil prices and geopolitical concerns, they believe, will keep the sentiment back home in check despite the recent correction that has made valuations somewhat reasonable.

“The valuation froth in the India equity market has settled after the recent derating. However, with global uncertainties still elevated, Indian equities may remain range-bound in the near term. We expect a good recovery in the second half of 2023 (H2-2023), as major central banks may likely end their rate hiking cycle amid a deteriorating global growth outlook,” wrote Jitendra Gohil, director, Global Investment Management at Credit Suisse Wealth Management India in a recent note with Premal Kamdar.

Any sharp correction, Gohil and Kamdar said, could offer a good buying opportunity as India’s medium-term growth outlook remains sanguine. As an investment strategy, they suggest investors focus on sectors with a high domestic exposure as the global outlook remains unfavorable.

From its 52-week high level of 63,583.07 hit on December 01, 2022, the S&P BSE Sensex has slipped nearly 5.5 per cent to 60,100 levels now amid global and domestic headwinds. The Nifty50 index, too, has lost around 6.3 per cent from its 52-week high level of 18,887.6.

Nifty's 12-month forward PE valuation of 17.8x, according to Credit Suisse Wealth Management, is near its 10-year mean, while its valuation premium has contracted versus global peers’ (MSCI India premium to the MSCI EM/World now at 57 per cent / 15 per cent).

Those at UBS, on the other hand, remain 'underweight' on Indian equities with a December 2023-end Nifty50 target at 18,000, up a modest 1.3 per cent from the current levels. As a strategy, they prefer banks, consumer staples, select autos; and remain underweight on IT Services, Metals & Mining and the Consumer Discretionary sectors.

“India stays expensive. With household flows receding and bank fixed deposit rates rising, we expect valuations to normalise. We are seeing clear signs of fatigue in household allocation to the markets. Retail direct flows to the market have turned negative, while flows into mutual funds are continuing falling,” wrote Sunil Tirumalai, strategist at UBS Securities India in a recent coauthored note.

As his base case,  Amnish Aggarwal, head of research at Prabhudas Lilladher values Nifty50 at 12% discount to last 10-year average PE at 18.2x (19.2 earlier) on March 2025 earnings per share (EPS) of Rs 1,128, and arrives at April 2024 NIFTY target of 20,551 (20,801 earlier). His bull-case pegs the Nifty50 at 23,354 levels, up around 24 per cent from the current levels, while the bear-case scenario pegs the 50-share index at 17,515, down around 1 per cent from the current levels.

“We expect higher spends on infra, rural, agri credit and bottom of pyramid sections in run-up to 2024 elections, which should sustain demand. Structurally, the story in India is intact, led by defence, industrial capex, digitisation / data centers, healthcare services, domestic consumption themes. We expect near-term pressures in IT services, pharma and specialty chemicals etc.,” Aggarwal wrote.