Stay cautious! Nifty may slump to 15,000; BofA Securities lists key risks to Indian equities

BofA Securities on Friday said that the benchmark NSE Nifty may fall to the level of 15,000 in the near term, indicating a downside of 9% from the current levels. It believes that taper talks in the US, potentially higher US bond yields and USD, consensus EPS cuts, recent muted IPO gains negatively impacting retail investor sentiment and could act as negative triggers going ahead.

However, it advised investors to stick with large caps in the near term. BofA Securities added that any scale down of retail positions could put pressure on mid and small caps.

The brokerage remained overweight on industrials, given the expectation of multi-year capex upcycle, and financials on likely peaking credit costs and a pick-up in credit growth. It further added that the rally in metals is likely near an end and Fed tapering could put pressure on commodities. “We cut materials to underweight from overweight earlier. With cautious a view on markets, we raise skew towards defensives in staples (from neutral), utilities and IT (overweight earlier) and maintain underweight on discretionary,” BofA Securities said in a report.

BofA Securities is positive on Larsen & Toubro with a target price of Rs 1,954 and Adani Ports (Target price: Rs 874). In the financials and IT space, it prefers HDFC Bank, HDFC, ICICI Bank, Bajaj Finance, State Bank of India and Axis Bank. BofA Securities is also positive on a couple of stocks from sectors like IT, staples and utilities. (see table)

While sharing an analysis it said that past bull and bear rallies suggest a typical run of about 75 weeks, providing an average 106% return. “After such rallies, markets typically correct about 30% over a 4-month period. The current rally has amassed a 118% total return over 73 weeks, we see limited further runway in light of emerging risks near term,” BofA Securities.