InvestorQ : How credible you find it that BOFA Securities has cut the target of the Nifty and it has typically rarely got its targets right in the past?
shrinidhi Rajan made post

How credible you find it that BOFA Securities has cut the target of the Nifty and it has typically rarely got its targets right in the past?

1 month ago

Forget about BOFA Securities; it is actually impossible for any broker or analyst to predict the Nifty with any degree of certainty. It is at best an educated guess and perhaps the education is a little formidable so the guess sounds formidable too. But back to the question on what BOFA has done. To cut a long story short, Bank of America Securities has cut its Nifty target for the end of the current calendar year by 1,000 points from 18,500 to 17,500. It has cited a combination of fundamental and technical reasons as well as concerns over flows to buttress its point that the Nifty may disappoint towards the end of the year.

Here are a few reasons that BOFA Securities has highlighted for the downgrade. The first factor highlighted by BOFA is weakening macros. That is something most of us are aware of. For instance, the IIP has dipped to -0.83% and the inflation has bounced to 7.41% in September 2022. Secondly, the brokerage house is also worried about the free fall in the rupee against the US dollar. For instance, rupee is now at 82.40/$ and the USDINR futures indicates at further weakness with rupee as low as of 83-84/$ before the end of the year. That will be an outcome of weak exports, high trade deficit and rising level of CAD.

There is also the concern over what happens to India demand and service sector if global demand for Indian goods goes down and the fall in tech spend impacts the major service export sectors in India like IT and software. The IIP data for August indicates that the negative cues are an outcome of weak demand from the export oriented sectors. To add to the problems, China stays weak due to excess COVID caution. Hence, China is not only disrupting supply chains but impacting the demand for metals and commodities. All this is going to hit indirectly, not to mention the weakness in the Yuan rubbing off on INR.

Can you really count on the year end predictions. Let us be fair. Most fund managers globally struggle to beat the index with more than 85% of the fund managers failing to beat the index. Sadly, that trend is gradually coming into India also. Now look at the irony. When it is hard to find a handful of stocks to beat the passive stock market index, it would be rather ambitious to believe that brokerages can predict the Nifty or the Sensex with any degree of credibility or certainty and confidence in their mind. After all, when predicting a stock is so tough, what can we say about predicting an index?

Let us look at some of the previous index projections by BOFA and the consistency. In February 2022, BOFA Securities cut Nifty target for December 2022 by 2,100 points from 19,100 to 17,000. Later, in June 2022, they again downsized its year-end target for Nifty by 1,500 points from 16,000 levels to 14,500 levels; and made the mistake of getting pessimistic at the bottom. Now in September 2022, the brokerage has cut the Nifty target to 17,500 from 18,500. The unfortunate reality is that hardly anyone has the vaguest clue about where the Nifty would be at the end of October; forget about December. The smart thing to do is to just read the stories and move on.