Jefferies looks at these 4 near-term risks that could limit Nifty’s upside

“Under various scenarios, the December-22 target for Nifty is 16.5-18.5k, which means around 17.5k, which is an almost flat market for the rest of the year,” the note said.

RBI’s continued stagnation on headline rates and surprisingly low CPI forecast for FY23 has given RBI a few months off. After the state elections are over in early March, the recent crude oil hike could result in a hike of Rs 6-8/litre in auto fuels. This hike will add about 30-40 bps to the CPI. Potentially higher CPI may prompt RBI to reverse its slack in the next 1-2 quarters.

Adequate global liquidity scenario is already under threat as high inflation is prompting a policy reversal. The Fed could also shrink its balance sheet by potentially active sales of its book in addition to the run-off. Record inflation in the Eurozone has also raised questions about the need for QE by the ECB. Jefferies reported that since April 21, FPIs have sold $20 billion in the secondary market.

“India is looking at the prospect of ‘twin’ deficits – fiscal and CAD – together in the next 12 months. Meanwhile, the Centre’s fiscal deficit target of 6.4% FY23 has already raised concerns in the bond market, The note said.

The brokerage has reduced the Nifty target to 17,500. Heavy overseas selling was helped by strong domestic buying to offset the market impact. “Potential LIC IPO could disrupt this balance. We remove Ambuja at constant margin pressure in the cement sector. Meanwhile, Hindalco is benefiting from a structural shift from steel to aluminum in autos, and from plastic and glass in beverage cans in Novelis, and from higher aluminum prices in the India business,” Jefferies said.