Nifty 50: Why not 20,000

Nifty 50: Why not 20,000?

-??Dr. Kishore Nuthalapati*

The present economic backdrop of India is positive, pleasant, and prospective. The whole sale price index is negative for June 2023 at 4.12%. However, the CPI Inflation has increased to 4.81% in June 2023 and is expected to be about 5% or plus in July 2023, mostly due to the increased prices of food related items. Cereals, Pulses, and Spices are now in shortage. While Tomatoes and Potatoes are at higher prices, Onions are at their normal prices. Food inflation is expected to remain higher. Due to this the WPI is negative while CPI has significantly increased. Kharif sowings delayed. Inflation is expected to cross 5% in July 2023.

The unemployment rate has marginally increased but is still at 8.45% in June 2023. Railway freight and port traffic slipped in June 2023 but is expected to evidence recovery in the coming month. The credit deposit ratio is higher. The deposits are growing at 12.5%, which is an improvement and the difference of growth rate with credit growth which is at 16.5% is decreasing. The call money rates are now at 6.5%, down from 7% ish. In the same lines, the 10-years G-Sec is trading at 7.06%. The USD/INR is at Rs. 82.10. The first quarter ending June 2023 registered a GDP growth of 6.8%, which is in the expected lines.

The present Nifty 50 and other major indices performed positively except Nifty IT and Nifty Auto. The consumer durable index, Media, and Bank index contributed more. Mid-caps performed better than small caps. The volume of trades is also high. Nifty 50, the major index of Indian market touched 19,983 during the trading session on 20th July 2023 and the experts expect that the index could touch 20,000 mark, which will be a major landmark event in the Indian stock market history.

The critics expressed caution and have their justified apprehensions, though. While the stock market movements cannot be completely predicted and none can time the market, at least the trend could be tracked to the extent that is built on valid reasons and fundamentals.

The rally until now is supported by FII investments, retail investors action, reasonably good Q1 results of companies. For instance, FIIs invested net Rs. 16,400 crs in July until now whereas DIIs sold net Rs. 10,000 crs until now. Expect on 12th July, in all other trading sessions, FIIs have been net buyers whereas DIIs have been net sellers.

Nifty FMCG, Nifty IT, Media, Metal, Pharma, PSU Banks, Consumable Durables, Oil & Gas, and a few other sectors are still below their 52-week highs. These sectors have good prospects and when these sectors also join to support the positive trend, the rally is possible. Also, going by the price earnings (P/E) basis, be it trailing P/E or forward P/E, the present valuations are still cheaper when compared with those during January 2022. At present, the market P/E is at 25 levels on trailing EPS basis and P/E of about 20 levels on forward EPS basis.

Considering the above, it is not unjustified to expect that Nifty 50 could touch 20,000 mark in the next few trading sessions and that will be a landmark event in the history of the capital markets of India.

Disclaimer: * Dr. Kishore Nuthalapati is the CFO of BEKEM Infra Projects Pvt Ltd, Hyderabad. The views in the narrative are his personal and do not reflect those of the organization/s he is or was associated with.?