Shrugging off major headwinds like the deadly second wave of COVID-19, disruption to economic activities, semiconductor shortage and supply constraints, and rising inflation, the Indian equity market had another year of good performance in 2021.
Despite the recent volatility in the wake of the Omicron variant infections and hawkish stance of central banks around the world, benchmarks Nifty50 and Sensex are up 20 percent so far this year.
On December 23, the Nifty50 closed at 17,072, just about 1,500 points short of its lifetime high reached on October 14, while the Sensex closed at 57,315 points. It hit a record high of 62,245 points on October 19.
The performance so far this year must come as a surprise to many who had written off major upside on the back of rich valuations and global spill-off concerns.
In fact, most brokerage targets that Moneycontrol compiled were conservative, with Kotak Securities expecting no returns for the Nifty this year. The brokerage had set a target of 13,500 points for the index, even though it had closed above 13,900 last year. The brokerage’s target for Sensex was at 46,000 for December 2021.
“Some of the most unexpected major events unfolded with positive surprises during the year. Many events closed on positive notes as well,” Kotak Securities said recently. It cited better-than-expected first quarter results as one of the key reasons that the market saw a “real take-off” that further intensified after the FY22 second quarter results.
The brokerages had forecast the Nifty to be between 13,500 and 16,800 points in December 2021. The index, therefore, beat every estimate on this list. The Sensex beat estimates in the same way, shooting off from 46,000 to 53,000.
“Everyone underestimated a swift recovery in growth, specifically in developed markets, which led to strong performance of sectors like technology services and metals,” said Shiv Chanani, Head of Research, Elara Securities India.
The healthy show had come after markets rallied in 2020 as well, even though there were bouts of volatility due to COVID-related uncertainties. In 2020, the Sensex rallied 15.8 percent and the Nifty climbed 14.9 percent, making it the best year for the indices since 2017.
Experts once again believe investors could turn cautious on Indian equities due to the rich valuations.
“Also, uncertainties on crude and commodity prices, speed of US tapering, and COVID recurrence are other factors that lead to a cautious view,” HDFC Securities said in a recent note.
It added that the Indian markets could face challenges, including the US rate cycle, rising oil prices, elections in key states, potential third wave of COVID-19, and rising interest rates.
“However, the market still has potential to positively surprise, as a macro construct (GDP growth, tax collections, flush liquidity, the start of a capex cycle, listing of start-ups leading to risk on sentiments, supportive monetary policy, better-than-expected pace of macro recovery post-pandemic, and strong vaccination drive) and earnings remain largely supportive,” HDFC Securities said.
Kotak Securities too seems to have turned optimistic this year despite the 20 percent rally in Nifty.
“The Nifty 50 is trading at a valuation of 24.8x FY22, 21.4 FY23 and 18.6 FY24 earnings. Though valuations look rich in isolation, the strong earnings growth in many stocks and sectors provide investment opportunity. Also, the recent market correction provides investment opportunities in quality large-cap and midcap stocks,” Jaideep Hansraj, MD and CEO, Kotak Securities, said in a recent note.
The brokerage has set its target for 2022 at 19,190 for the Nifty and 63,800 for the Sensex.
Axis Securities seems more bullish, expecting 20,200 points by the end of next year aided by a strong corporate earnings growth trajectory; and Elara Securities’ Chanani expects the Nifty to be at 20,000 and Sensex at 67,000 by the end of next December.
Motilal Oswal Financial Services Chairman Raamdeo Agrawal, however, said during a recent event that he expects the Nifty to be between 17,000 and 18,000 by 2022-end, which would indicate an upside of just about 5 percent from the close on December 23.
So, will the market impress or disappoint in the coming year? Only time will tell.