Nomura Expects Nifty To Hit 24,260 In 2024

NSE Nifty 50 may hit 24,260 by year-end, returning 12% in 2024, with any short-term correction presenting as a buying opportunity, according to Nomura Holdings Inc.

The base case factors are continued disinflation and a fall in yields, a modest slowdown in growth globally, benign oil and commodity prices, and a favourable outcome in the Lok Sabha election, the research firm said in a note on Thursday.

"We expect India's valuation to remain at higher-than-historical levels, supported by macro stability, greater visibility on earnings, and stronger flows," it said.

Globally, the scenarios of no landing—strong growth, sticky inflation and higher yields—and a hard landing—a sharp fall in growth, inflation, and yields—can lead to a higher risk premium and a lower valuation, Nomura said.

"Such a correction would be a buying opportunity, in our view, particularly if a growth slowdown or recession in the U.S. is a clearing event reducing macro uncertainties. This could set the stage for a revival in mass consumption and private capex," it said.

Nomura is selective and slightly defensive, given the run-up in valuations recently. The expectations for the growth-inflation balance are extremely sanguine. "Any deviation from this optimum can set a risk off in the backdrop of higher debt and fiscal deficits post-pandemic," it said.

Investments, especially government investments, have been the key driver of economic growth after the coronavirus pandemic. Unlike most components of the economy, gross fixed capital formation is above the pre-pandemic trend, Nomura said.

Capital expenditures from the union and state governments are the key drivers, it said. "Railways, roads, drinking water, renewable energy, and urban infrastructure are the key infrastructure segments that have recorded strong growth over the past four years."

However, so far, private capex has failed to pick up in a meaningful way, Nomura said. Corporate capex as a percentage of the GFCF declined from 55% in 2015–16 to 45% in fiscal 2022 before recovering to 46% in the last fiscal, the financial services firm said.

The current government policy is geared towards promoting domestic manufacturing. Lowering tax rates for corporates, the production-linked incentive scheme, and focusing on local manufacturing of defence equipment and semiconductors are the key initiatives, according to Nomura.

The contribution of manufacturing to the overall economy has been on a declining trend. The manufacturing gross value added as a percentage of the gross domestic product is at a multi-year low of 13.3% and is much below most economies in the region. The government aspires to increase it to 25% over time, it said.

• Nomura is 'overweight' on financials (particularly banks), healthcare, consumer staples, infrastructure, cement, power/coal, oil & gas, and telecom.

• It is 'underweight' on consumer discretionary and durables, capital goods/defence, metals, internet and information & technology.

• It is selective on autos.

• Top picks in large-cap: ICICI Bank Ltd., Godrej Consumer Products Ltd., Mahindra & Mahindra Ltd., Larsen & Toubro Ltd. and Reliance Industries Ltd.

• Top picks in small- and mid-cap: Coforge Ltd., Lupin Ltd., Medplus Health Services Ltd., Dalmia Bharat Ltd., the Federal Bank Ltd. and Sansera Engineering Ltd.