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NIFTY 50 forecast : Will lofty valuations drag Indian equities in 2023?

By Mensholong Lepcha

Edited by Jekaterina Drozdovica


Updated

NIFTY 50 logo
The NIFTY has outperformed the FTSE 100 and the S&P 500 year-to-date – Photo: Comdas / Shutterstock.com

India’s equity benchmark index, the NIFTY 50 index, defied global risk-off sentiment in 2022 to rise to an all-time high by the first week of December.

Indian equities have outperformed most of their global peers in 2022, on bets that the world’s fifth-largest economy will remain largely shielded from recessions in the US and Europe.

Going into 2023, India’s strong economic growth is expected to support its market despite tightened monetary conditions. However, there were a few concerns over the “steep valuations” of the Nifty 50 index (NIFTY50) constituents.

How is India’s NSE NIFTY 50 index expected to trade in 2023? Learn more in our NIFTY 50 forecast for 2023 and beyond.

About NIFTY 50 index: Understanding the benchmark index

A detailed sector breakdown for the NIFTY 50 index could offer investors more clarity on what factors may shape the NIFTY 50 forecast in 2022.

The NIFTY 50 is a diversified 50-stock index made up of some of the biggest publicly listed companies in India. It is computed using the ‘free float market capitalisation’ method, which takes into account only active shares and excludes inactive, locked-in company shares.

Alongside the 30-member blue-chip S&P BSE Sensex index, the NIFTY 50 is one of India’s benchmark equity market indices. The member constituents of the Nifty 50 index are rebalanced, if needed, on a semi-annual basis.

As of the end of November 2022, the Nifty 50 index has returned about 14.3% on a total return basis over the past five years.

The financial services sector dominated the Nifty 50 index with a sector weight of 37.1% as of 30 November 2022. Information technology, oil, gas and consumable fuels, and fast-moving consumer goods (FMCG) followed with sector weights of about 14.4%, 13% and 8.6%, respectively.

Oil-to-telecoms conglomerate Reliance Industries was the NIFTY 50’s largest single constituent with a weight of 11.4%, as of 30 November 2022. Private lenders HDFC Bank (HDB) and ICICI Bank (IBN) followed with index weights of 8.5% and 8%, respectively.

Information technology firm Infosys (INFY) fell out of the top three index constituents following the company’s oversized market losses in 2022 and came in fourth with an index weight of about 7.2%. Housing Development Finance Corp closed the top five spots at 5.9%.

It should be noted that HDFC Bank and HDFC are expected to complete their merger in 2023, which should prompt a rejig in the top constituents list.

The other companies in the Nifty 50 index top 10 list were technology services giant Tata Consultancy Services, lender Kotak Mahindra Bank, cigarettes-to-hotels company ITC and engineering services conglomerate Larsen & Toubro. 

FMCG giant Hindustan Unilever pipped Axis Bank (AXB) to take its place among the top 10 constituents on the Nifty 50 index, as of 30 November 2022.

NIFTY 50 price analysis: Defying odds in 2022

In early 2020, when the world was still coming to terms with the seriousness of an epochal pandemic, the NIFTY 50 crashed nearly 40% to a then four-year low of 7,511 points on 24 March 2020.

As central banks cut interest rates and governments released fiscal stimulus to support economies, the flush of liquidity in the market fuelled a fast-paced rally in global equities.

The NIFTY 50 had recovered all its losses from its four-year low by early November 2020. The index went on to scale multiple record peaks in 2021.

Each time the NIFTY 50 index fell in 2021, it came back stronger as investors saw dips as an opportunity to accumulate positions. Rebounds from buy-the-dip investing were prevalent even when the NIFTY 50 saw weakness after a second Covid-19 wave pushed fresh cases to over 300,000 a day in India.

By October 2021, the NIFTY 50 had surged to an all-time high of 18,604 points. The index had rallied more than 147% from its low in March 2020. The strength of retail investors was a major factor in the index’s bull run, with reports suggesting there were 14.3 million new investors in the 2021 fiscal year.

The NIFTY 50 began to see weakness as foreign institutional investors (FII) started pulling capital out of Indian markets. Data from Jefferies showed foreign investors have been net sellers of Indian equities for nine straight months from October 2021 to June 2022.

The index fell to 15,183 points on 17 June 2022, its lowest in over a year, as the US Federal Reserve embarked on an aggressive 75-basis-points rate hike for the first time since 1994.

The NIFTY 50 index rebounded strongly to gain 21% and trade at more than 18,400 by 15 December 2022.

Much of the NIFTY 50 index’s strong performance over the year can be contributed to gains posted by the Indian financial sector.

The sub-index NIFTY Bank posted year-to-date (YTD) gains of 19% as of 15 December 2022, compared with the NIFTY 50 index’s YTD gain of 4.3%.

A credit up-cycle in India has boosted the prospect of Indian banks. Investment firm Jefferies has put the aggregate bank credit In India at close to INR130trn in November 2022, up from less than INR100trn a year ago.

AAPL

230.23 Price
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Long position overnight fee -0.0263%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
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NVDA

129.88 Price
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Long position overnight fee -0.0263%
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Overnight fee time 21:00 (UTC)
Spread 0.13

GME

26.10 Price
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Long position overnight fee -0.0263%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
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AMD

181.99 Price
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Long position overnight fee -0.0263%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
Spread 0.18

A return of foreign institutional money into the Indian market has also helped the Nifty 50 index rise to a new all-time high in 2022.

Net foreign portfolio investor flows turned positive in July 2022 after nine consecutive months of outflows. Foreign institutions were net buyers of Indian equities in four of five months between July and November 2022, data from Jefferies showed.

On 1 December 2022, the NIFTY 50 index hit an all-time high of 18,887 points.

At the time of writing on 15 December, the benchmark index was trading 2.5% lower than its peak at 18,414 points.

Market forces: India’s growth potential, rate hikes and inflation

Growth

ANZ Research said in a note that India presented a “compelling structural narrative” on the back of the Indian government’s commitment to strengthening the nation’s industrial and manufacturing sector.

Policymakers in India are focused on raising the share of manufacturing in India’s gross domestic product (GDP) to as much as 25% by March 2026, according to ANZ Research. The strategies in place look to take advantage of India’s favourable demographics, combined with geo-political tensions in China.

“A mature manufacturing sector will also help to reduce the non-energy trade deficit, much needed given the economy’s heavy dependence on imported energy. The potential for a catch-up in productivity with other economies also tends to be the largest in the manufacturing sector,” said ANZ Research.

According to ANZ Research, the immediate concern for India is its deteriorating onshore liquidity, highlighted by the rising loan-deposit ratio in the nation’s banking system and a 67% drop in India’s foreign currency reserves since the third-quarter of 2021.

“The emerging dilemma for the RBI is to choose between a weaker rupee or tighter liquidity. We believe that policymakers will opt for a middle-road strategy – reduce intervention and tolerate further depreciation of the rupee and allow for some upward adjustment in rates,” said ANZ Research in a 2 November 2022 note.

“This middle strategy will still have a bearing on growth, but less so. Taking this policy stance and slowing global growth into consideration, we forecast FY24 (fiscal year ending March 2024) at 6.1%. It still points to India’s outperformance against the backdrop of a slowing global economy,” added ANZ Research.

Inflation and interest rates 

Inflation in India has been showing signs of easing.

The provisional consumer price index (CPI) data for November 2022 revealed that headline inflation increased by 5.8% during the month compared to a pace of 6.7% reported in October 2022.

The provisional data showed inflation in India came within the Reserve Bank of India (RBI) tolerance band of 2% to 6% for the first time in 10 months in November 2022.

Although the signs were encouraging, the RBI said “further calibrated monetary policy action is warranted to keep inflation expectations anchored, break the core inflation persistence and contain second-round effects” on 7 December 2022, after hiking benchmark lending rates by 35 basis points to 6.25%.

Analysts at Jefferies saw the RBI hiking rates by another 50 to 75 basis points in the months to come.

Jefferies added that “the developed-world phenomenon of rising rates impacting growth through a slowdown in property markets and corporate spending won’t happen in India” due to low corporate sector debt and high pent-up property demand in India.

NIFTY 50 forecasts for 2023 and beyond

According to a NIFTY 50 prediction by ICICI Securities on 15 December, the Indian benchmark index is expected to “maintain its northbound trajectory and challenge the all-time high”.

The brokerage saw the index trading near 19,400 points by January 2023. ICICI Securities added that the broader market was expected to outperform the benchmark index.

Meanwhile, Hemang Jani, head of equity strategy at Motilal Oswal Financial Services, said in a NIFTY 50 forecast on 15 December:

“We don’t see a case for deep correction in our markets given the drop in crude and commodity prices and likely margin expansion for many sectors like cement, consumer, auto and speciality chemicals. Nifty should cross the 20,000 mark some time around the Budget ie Feb 2023.”

Elsewhere, Jefferies in its Asia 2023 Outlook: Our Best Ideas report said the Nifty 50 index could stay rangebound between 17,000 and 19,500 points due to its “steep valuations”.

“We expect Nifty to range in +/-5% around the 18k levels. We remain positive on the domestic economy/capex and our key picks are large banks (ICICI, SBI), developers (GPL, DLF), auto companies (Maruti, Tata Motors, TVS), Staples (HUVR, GCPL, Britannia) and select cap goods (L&T, Thermax, CCRI),” said Jefferies.

Finally, data provider Trading Economics’ NIFTY 50 forecast indicated a bearish outlook, suggesting the index could fall to 17,955 by the end of December 2022.

Its long-term NIFTY 50 prediction saw the index falling to 16,422 in one year from 15 December 2022.

Trading Economics did not provide a NIFTY 50 forecast for 2025 or a NIFTY 50 forecast for 2030 in its long-term projections.

Note that NIFTY 50 forecasts can be wrong, and that forecasts should not be used as a substitute for your own research. Always conduct your own due diligence before trading, and never invest or trade money you cannot afford to lose.

FAQs

Is the NIFTY 50 a good investment?

The NIFTY 50 index is India’s benchmark equity market index, alongside the S&P BSE Sensex. The NIFTY 50 tracks the performance of the 50 most valuable publicly-listed Indian companies by market capitalisation.

Whether the NIFTY 50 index is a suitable investment for you will depend on your risk tolerance, investment goals, portfolio size and other personal circumstances. Always conduct your own due diligence, and never invest any money that you cannot afford to lose.

Will the NIFTY 50 go up ?

Data provider Trading Economics’ NIFTY 50 forecast indicated a bearish outlook, suggesting the index could fall to 17,955 by the end of December 2022. Its long-term NIFTY 50 prediction saw the index fall to 16,422 in one year from 15 December 2022.

Note that NIFTY 50 predictions can be wrong, and that forecasts should not be used as a substitute for your own research.

Should I invest in the NIFTY 50?

Whether the NIFTY 50 index is a suitable investment for you will depend on your risk tolerance, investment goals, portfolio size and other personal circumstances. Always conduct your own due diligence and never invest any money that you cannot afford to lose.

 

Markets in this article

HDB
HDFC Bank
60.49 USD
0.11 +0.180%
IBN
Icici Bank - ADR
29.24 USD
-0.12 -0.410%
INFY
Infosys - ADR
20.44 USD
0.5 +2.520%
AXB
Axis Bank
79.26 USD
1.2 +1.550%

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