Nifty fair value is 20,900: Ambit Research

Ambit Capital said the fair value of Nifty is 20,900 by the end of fiscal year ’24, taking into account the bond yield gap (EYBY) on March ’24. It says it prefers large caps over small and mid-caps.

“Nifty’s fair valuation rises to 20,900 using 7.1 per cent G-Sec yield and March 24 EPS of Rs 940 (against consensus ‘Rs 991).'” He Said.

The investment advisory firm has added SBI, Indigo, Affle, Max Healthcare and IndiaMart cards to its investment portfolio, excluding LIC Housing Finance, GCPL and Bank Nifty.

Hopes of lowering the interest rate

A neat upside target is possible if yields persist at low levels or March 24 earnings are above expectations, Ambitt said, adding, “The latter seems unlikely.”

Ambitt said banking NIMs will decline and any drop in interest rates in the second half of FY24 could put more pressure on. The overnight index swaps (OIS) curve highlights the potential for interest rate cuts over the next few months. Also, the US Federal Reserve and European Central Bank will contract bond supply, which affects liquidity, although India stands out in comparison to its macro counterparts and can outperform its peers, she said.

“We have lowered our 10-year return assumption from 7.3 per cent as the OIS curve, real price and G-sec repo spread suggest returns will remain benign. But we see risks to earnings as Nifty’s ‘BFSI’ growth engine slows.” In FY24, with the contribution to declining rising EPS growth (43 percent) and risks remaining to profits from IT, Oil & Gas (Reliance), and Metals, he cautioned.

Challenges Reliance, Metal

Technology earnings remain with revenue growth expected to normalize to the pre-Covid period. However, delays in China’s recovery could hurt Reliance and metals earnings.

Ambit Capital’s allocation for medium and small capital is 12 percent / 5 percent, while the cash allocation is 5.2 percent. “While we hold on to overweighting banks, we recommend underweighting because valuations are not as cheap as on May 22nd and the book-to-book yield spread model indicates silent one-year yields,” the company advised.