The Nifty 50 index is most likely to hit 15,800 levels by December 2021, implying a rally of more than 12 per cent from the current record higher level, says brokerage firm Jefferies India. It expects NSE’s Nifty to provide double-digit returns of 12.45 per cent on the back of powerful financial revival in 2021/22 aided by housing marketplace revival, and corporate earnings development of 37 per cent in FY22 and 22 per cent in FY23. “A supportive global backdrop helps us start 2021 with a bullish view on Nifty,” the foreign brokerage firm stated in a current note. It maintains a positive stance on cyclical recovery in India, which it says is due to expanding proof that the housing cycle has bottomed out and is now set for a multi-year upswing.
Equity analysts Mahesh Nandurkar and Abhinav Sinha noted that presently Nifty trades at 22.3x 12M forward earnings. Their Nifty target of 15,800 implies a 20x 12M forward PE – 10 per cent derating from the existing level. The analysts think that favourable international backdrop ought to continue to drive foreign inflows. “We expect overall domestic retail participation (including direct participation) will be supportive,” analysts stated. The leading 10 stock picks of Jefferies India are Housing Development Finance Corporation (HDFC), ICICI Bank, Godrej Properties, ACC, Hindustan Unilever Ltd (HUL), Concor, Maruti Suzuki, L&T, Tata Steel and Dixon Technologies.
In 2020, the Nifty 50 index gained 15 per cent. It was observed that its overall performance was substantially enhanced in the second half of 2020 with the gradual reopening of the economy post India’s strict lockdowns restrictions. The analysts see India’s most likely superior development profile in 2021 (with the strictest lockdown in base). “Also, the market having seen much higher PE premiums earlier, means that India is not relatively very expensive and as such has room for further outperformance in 2021,” they noted.
Rise in CAD will be unfavorable for stock markets
Jefferies India also noted that the Reserve Bank of India (RBI) for now has selected to appear via larger inflation as they are in development assistance mode. However, as soon as the development revival becomes more apparent, by mid-2021, the central banks would no longer be capable to ignore inflation. The report also highlighted that if the existing spike in commodity costs continues to sustain by then and/or there is a sharp jump in oil costs, India could be seeing persistent inflation and increasing existing account deficit. “This could force the RBI by reducing the liquidity support and later raising the interest rates. The same would be a market negative event as multiples could readjust,” it stated.
Mid-caps underperformance has reversed
In the context of broader markets, Jefferies India stated midcap underperformance has reversed. It believes that the continued uncomplicated international liquidity and anticipated cyclical recovery in India ought to be a supportive atmosphere for mid-caps. The brokerage’s evaluation of previous overall performance suggests that mid-caps have tended to outperform huge caps when development accelerates in India or is trending higher. “With GDP growth rising to 13% in FY22, and broad-basing happens in economic activity thanks to a cyclical pick-up in property, mid-caps should do well,” it stated.
“2021 is likely to mark the turn in the property cycle which is likely to benefit companies across the value chain,” the report stated. Among the mid-cap tips, Jefferies India likes Oberoi Realty, Kajaria Ceramics and Supreme Industries. The other midcap picks incorporate Varun Beverages, Graphite India, Dixon Technologies, MGL, IGL and Container Corporation of India.