Despite the volatility seen in the past few days, the equity benchmark Nifty 50 index is likely to hit the level of 20,400 by December 2023, according to brokerage firm Axis Securities.

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This implies an upside potential of 17 percent from Wednesday's closing level of 17,450.90 for the Nifty.

“We continue to believe in the long-term growth story of the Indian equity market, supported by the emerging favourable structure as increasing capex enables banks to improve credit growth,” Axis Securities said.

It added that while the medium- to long-term outlook for the overall market remains positive, some volatility can be expected in the short run with the market responding in either direction.

Keeping this in view, the current setup is a ‘Buy on Dips’ market, it added.

Axis Securities recommended investors maintain good liquidity (around 10 percent) to use such dips in a phased manner and build a position in high-quality companies (where the earnings visibility is quite high) with an investment horizon of 12-18 months.

In the bull case, Axis Securities has put a December 2023 target of 22,500 for the Nifty, implying an upside of 29 percent from Wednesday’s closing level.

“Our bull case assumption is based on the overall reduction in volatility as well as geopolitical tensions in 2023, which would lead to further cool-off in commodity prices, especially oil. The tightening cycle in the US will likely continue in 2023, albeit at a slower pace. The US FED may take a pause sometime in mid-2023,” said Axis Securities.

“If the market sails through the next 6-9 months smoothly, we would see the next set of triggers and money would flow to emerging markets, which will have the effect of increasing the overall market multiple,” it added.

In the bear case, Axis Securities sees the Nifty at 18,400 in December 2023, implying an upside of just 6 percent.

“(In this case) We assume the Russia-Ukraine war to prolong which would continue to pose inflationary challenges to the developed world. This, in turn, would have an impact on the export-oriented growth in the domestic market and would concurrently pose challenges to the earnings and market multiple,” the brokerage firm said.

Notably, the Nifty touched an all-time high of 18,758 on November 30, 2022, but then drifted downwards on account of several macro challenges. Since then, the benchmark index Nifty 50 is down by 8 percent, while the midcaps and small caps have corrected by 6 percent and 8 percent, respectively.

(Edited by : Rukmani Krishna)