Nifty to hit new all-time high of 19425 in next 12 months, cooling commodity prices provide comfort

Nifty 50 is likely to scale fresh all-time highs of 19,425 in the next twelve months, said analysts at ICICI Direct. Although the April-June quarter earnings were muted for Dalal Street, the recent southward march undertaken by commodity prices is seen to be providing comfort going forward. “The recent cool off in key commodity prices viz. metals, crude among others comes as a breather for global equity markets, which are currently wary of ongoing geopolitical issues and interest rate hikes by central banks to control inflation,” ICICI Direct said. On Friday, NSE Nifty 50 was down 150 points or 0.88% to sit near 17,800.

Commodity prices move lower

Earlier this year, commodity prices soared higher owing to multiple headwinds such as geopolitical tensions, the Russia-Ukraine war, fear of demand slowdown, and the threat of rising interest rates. Crude oil had soared to breach $120 per barrel. Other commodities such as copper had also jumped. The up-move charted by commodities aided the sharp rise in global inflation. 

However, now prices have moved lower. Brent crude and WTI crude futures are below the $100 per barrel mark. Earlier this month, NMDC, CMD Sumit Deb told Financial Express that prices of Iron ore had bottomed out. ICICI Direct believes that the fall in commodity prices will act as a breather for global equity markets.

Results muted but commentary upbeat

Earnings season on Dalal Street was not stellar as some firms did see margin pressure owing to rising input costs while banks’ profits were hit by treasury losses. However, management commentary was still robust. “Management commentary is upbeat on demand prospects and recovery in margin profile amid muted corporate earnings for April-June quarter, which witnessed low single digit on-quarter growth in topline and double-digit bottomline decline with pressure on gross margins,” ICICI Direct said.

ICICI Direct’s Nifty earnings have undergone a small downward revision of close to 2% owing to the weak quarterly results. “Major disappointment came in from the oil & gas sector wherein marketing margins came in lower than estimated. However, capital goods, metals & mining and pharma space surprised on the positive side,” analysts noted.

Nifty set to climb fresh highs

Domestic stock markets have shown their resilience in recent weeks soaring smartly from June lows. “Domestically, with a capex cycle revival on the anvil (public + private) coupled with strong consumer demand across most categories (passenger vehicles, retail, etc), Indian markets witnessed a smart recovery and were up ~18% from recent lows,” ICICI Direct said. 

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Reiterating their positive view, ICICI Direct said that they remain constructive on the overall markets and believe the present market offers an attractive risk-reward play to build a long-term portfolio of quality companies, which have lean balance sheets, are capital efficient in nature and have growth longevity. “ We now value the Nifty at 19,425 i.e. 21x PE on FY24E EPS of | 925 wherein we marginally increase our PE multiple to 21x vs. 20x earlier tracking cool off in commodity prices and consequent positive impact on inflation and resultant modest rate hike velocity by central banks vs. the aggressive stance depicted earlier,” they said. The corresponding target for Sensex is set at 64,700. “As structural bets, we like capex linked capital goods, domestic consumption plays including autos and PLI oriented domestic manufacturing play,” analysts noted.