Nifty hits lowest level in six months: Check how much upside brokerages see from here

Fresh updates from the financial markets indicate that The Nifty 50 index declined to 22,650 on September 29, a six-month low. Crude above $107 a barrel, elevated US bond yields and foreign selling drove the decline. Here is the puzzle: The market has eased but most global brokerage targets have not, yet. Every target points to double-digit upside.

How much upside are the research firms still showing?

Did they see this coming?

Partly, yes. Several houses had named the risks, although not quantifying it’s outlook on Nifty’s September dip.

Antique Stock Broking additionally pointed out that macro headwinds in the form of elevated oil price marks, INR depreciation, and FPI equity outflows were already weighing heavily on corporate margins before showing signs of easing.

BofA listed eight risks back in August. They included elevated crude, weaker monsoons, Fed and RBI rate hikes, indian rupee softness and heavy primary market supply. It stated five of the eight had already played out or been absorbed by the market. The rest could still cost 7 to 8 per cent. Its earlier bear case was near 22,000. Monday's close is just above that.

Jefferies' Chris Wood has called elevated oil the single biggest near-term risk and that Nifty’s upside is capped. Adding that he’d be "surprised if the RBI doesn't raise rates."

Morgan Stanley had highlighted that markets were to face near-term vulnerability due to a relative expansion gap with AI-fuelled economies and external macro uncertainties. But further noted that India's relative performance had hit multi-year lows, meaning a lot of the bad news and volatility had already been priced into the broader consolidation.

Bernstein cautioned that while macro variables like oil might experience temporary relief, the path ahead remained volatile due to structural cost pressures and rising inflation risks, making a pullback unsurprising.

Nomura noted that sustained geopolitical tensions and oil volatility posed downside risks to the market, pinning its Nifty target upon an 18.5x one-year forward earnings multiple.

Then why do the targets still sit so high?

Morgan Stanley sees a multi-quarter expansion upcycle led by investment and domestic cyclicals. HSBC stays overweight India within Asia. BofA thinks residual risks could peak by October, with recovery from November. JPMorgan urges caution into late October, then a possible year-end propel.

So the targets are not a call for a quick rebound. They are a call for a rebound after a rough patch.

But that rebound may not necessarily come through a sharp climb in the index. Trilok Agarwal, Fund Manager – Equity at Ambit Asset Management, stated domestic SIP flows can keep absorbing foreign selling, but they do not by themselves create the marginal demand needed for a market rerating.

With the Nifty trading at around 19 times one-year forward earnings, India keeps trade at a premium to other emerging markets, even after the recent correction.

This relative valuation, Agarwal stated, could keep matter for foreign market participants in a global high-yield environment, particularly with US 10-year yields above 5.2%.

Aparna Shanker, Chief Investment Officer – Equity at The Wealth Firm Mutual Fund, adds that the market may need time rather than another sharp price correction. That additionally makes the November-December recovery window less of a deadline than a potential turning point. Shanker stated a more constructive setup would emerge only if crude stabilises, global yields moderate and earnings visibility improves, while a recovery in the calendar alone does not guarantee an immediate recovery in the index.

On the downside, Agarwal does not expect a meaningful further correction, citing the earnings outlook. He anticipates FY27 earnings expansion of 17-20% in the mid- and small-cap segments and stated the combination of earnings expansion and corrective valuations should provide backing to the market.