Scared to enter equity markets at current levels? The good news is the rally is here to stay and both Sensex and Nifty50 are likely to claim fresh highs in 2021.
The S&P BSE Sensex and Nifty50, which will close the year 2020 with double-digit gains, recouped March losses and rallied more than 70 percent each since April.
Loose monetary policy by the central bankers across the globe, low-interest rates back home, stimulus packages from various countries including India, as well as fall in COVID-related cases strengthens the assumption of a quick global recovery triggered risk-on sentiment.
There is no denying the fact that markets are trading at expensive valuations and the possibility of some consolidation is something that is possible in the near term. But, relentless FII flows (which could slow down but will remain intact), coupled with green shoots in the economy as well as strong corporate earnings recovery will keep flows coming to equities.
Going by the above-given factors, even if you fear highs, it makes sense to allocate part of capital towards equity markets on every dip. And, avoid doing the mistake of timing the market which could have its own repercussions.
“We are in a lower interest rate regime combined with a growing balance sheet of central banks across the world, infusing abundant liquidity in the market, and creating price appreciation within a short span of time. The positive factors are getting priced with Nifty valuation no longer cheap at about 20x FY22 earnings, which will require consistent support in growth to sustain the higher valuations,” Dinesh Rohira - Founder, CEO - 5nance.com told Moneycontrol.
“A successful rollout of vaccine with subsiding covid-19 cases, and the stable geopolitical situation will also detect market movement. Given this positive conjunction in the market at present, we expect the Nifty to stay in the 15000-14500 range in CY2021 with a positive bias at the higher side,” he said.
Technically, Nifty50 has broken above a resistance line connecting the August 2018 and June 2019 peaks. Similarly, the S&P BSE Sensex has also broken above the resistance line connecting January 2015 and May 2019 peaks - both have strong bullish implications.
Given the strong market rally since March 2020, bouts of volatility and price correction cannot be ruled out in CY21, suggest experts and such corrections should be used as buying opportunities especially in the small & midcap space.
“By end of CY2021, we expect Nifty 50 index to test 14800-15000 range and Sensex to test the 51,000-52,000 zone. The Nifty Midcap 100 index has almost doubled since bottoming out in March, while the Nifty Smallcap 100 index has done better during the same period,” Gopal Kavalireddi, Head of Research, FYERS told Moneycontrol.
“During the recent nine-month rally, both indices have cleared major resistances of earlier times. This indicates that the worst could be over for the broader markets for now, following a tumultuous two-year period between Jan’18 to Mar’20,” he said.
Jyoti Roy, DVP Equity Strategist, Angel Broking Ltd expects benchmark indices to give returns of around 10-12% from current levels by December 2021.
“We also expect that the broader markets will outperform the benchmark indices going forward. However at current levels the Nifty is trading at P/E multiple of 20xFY22 EPS which is on the expensive side and therefore some short-term volatility cannot be ruled out especially if there is any pull-back in FII flows,” he said.
However, Roy remains positive on the markets from a long term perspective given expectations of strong earnings growth in FY2022 and FY2023.
A double-digit return is something that most experts are factoring in for the year 2021 but after the recent rally, some profit booking cannot be ruled out.
The S&P BSE Sensex which climbed Mount 47K could well surpass 50,000-53000 in the coming year, estimates experts but investors should stick to quality rather than chasing high beta names.
“I see Nifty to touch 15,500 level in the year 2021, which is around 14 percent upside from current levels. BSE Sensex might touch 53,000 for next year,” Gaurav Garg, Head Research, CapitalVia Global Research Limited told Moneycontrol.
“Selective large caps banks along with IT majors might show good returns therefore investors should pick large caps in a staggered manner,” he said.
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