Nifty at risk? Ventura predicts potential drop to 20,510; worst-case target at 14,357

After the recent stock market correction, domestic brokerage house Ventura Securities has outlined a series of potential bear case scenarios for the Nifty index in 2025, assessing valuation declines based on historical market corrections. According to the brokerage, Nifty could see a significant downside depending on macroeconomic factors and market sentiment.

The report highlights key valuations that benchmarks observed during past crises, such as the Global Financial Crisis (GFC) of 2008 and the COVID-led market crash in 2020, offering a framework to gauge possible market movements.

Ventura noted that if the Nifty replicates valuation levels seen in previous market corrections, the index could drop to 20,510 based on the CY25 consensus EPS of ₹1,194 and a 15X forward P/E, which was observed during the 2020 Covid crash. In an extreme stress scenario, where valuations mimic the 10.5X forward P/E from the 2008 GFC, the index could plummet to 14,357. However, it stated that a median valuation of 12.75X P/E appears to be a more realistic deeper correction level, bringing the Nifty to 17,434.

Current Market Valuation

As per the brokerage, amid the ongoing market correction, Nifty’s forward P/E for CY25 and CY26 has already declined to multi-year lows of 18.5X and 16.2X, respectively. The report highlighted that in the past, major market downturns led to a sharp contraction in valuations. While the COVID crash in 2020 was severe, its impact was somewhat cushioned due to global awareness of quantitative easing (QE), unlike in 2008, when the response to the GFC was uncertain.

Key Global Economic Risks

Ventura identified several global risks that could exacerbate market volatility, including:

• Reversal of US trade policies, including tariff impositions.
• The Department of Government Expenditure (DOGE) crackdown on wasteful and fraudulent expenditures.
• Fiscal deficit concerns, requiring urgent corrective measures.
• A shift toward onshore manufacturing, reducing dependence on imports.

The brokerage stated that these factors contribute to quantitative tightening (QT), leading to a contraction in global GDP, liquidity constraints, and heightened market volatility.

Potential Market Meltdown

The brokerage warned that if market mechanisms to control the downturn are not put in place, the correction could be more severe than in 2020. The report highlighted that the current overvaluation in global markets could exacerbate the decline, making extreme undervaluation a likely outcome. Ventura’s proprietary Trading-with-Multiples methodology suggests that a significant market downturn could be ahead if economic conditions worsen.

US Debt Burden and Its Implications

According to Ventura, the rising US government debt remains a significant concern, posing potential risks to economic stability. The report highlighted that the national debt currently stands at USD 34.6 trillion, equivalent to 120 percent of the GDP. To stimulate economic growth, the government has proposed a USD 4.5 trillion tax break while simultaneously increasing the debt ceiling by USD 4 trillion. In an attempt to manage fiscal pressures, a spending cut blueprint of USD 2 trillion has also been outlined.

However, it cautioned that if US GDP growth falls below the Federal Reserve’s interest rate, the country could face a debt spiral. In such a scenario, additional borrowing would be required just to service existing debt, further exacerbating the debt-to-GDP ratio and increasing financial vulnerabilities.

Historical Parallels and Risks of Long-Term Stagnation

The report also drew parallels between the current US economic situation and Japan’s fiscal struggles in the 1970s. Ventura highlighted that when Japan’s interest rates and inflation exceeded GDP growth, the country’s debt-to-GDP ratio surpassed 100% during the 1998 Asian Financial Crisis, ultimately crossing 250% by 2024, with economic growth remaining stagnant. The brokerage warned that the US could face a similar prolonged period of low growth and fiscal instability if corrective measures are not implemented.

Impact on Global Markets

Ventura emphasiwed that if the US GDP growth remains weak, it could lead to a broad-based market downturn. With the US accounting for 26% of global GDP, any prolonged slowdown would have widespread consequences. The report stated that global GDP growth (excluding the US) has historically been 1.3X that of the US, making American economic stability crucial for global financial markets.

In summary, Ventura’s analysis underscores the potential risks facing equity markets in 2025. While the Nifty Index has already seen a correction in valuation multiples, further downside remains possible if global economic conditions deteriorate.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.