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Nifty may hit 21,000 before any major correction; earnings, inflation extremely critical: Experts

Improved corporate earnings and the economic recovery are encouraging investors, although experts suggest keeping an eye out on crude oil prices

October 12, 2021 / 03:55 PM IST

The Nifty 50 finally crossed the 18,000 milestone on October 11, driven by the flow of money from new-age and institutional investors despite global weakness and the risk of inflation due to increasing oil prices.

Going by the trend in several quarters, investors are buying on every dip, given the improving corporate earnings, economic growth and measures taken by the government and the Reserve Bank of India in the wake of the pandemic.

The availability of easy liquidity contributed to the momentum in equities across the globe although there is some volatility now on expectations the US Federal Reserve will start tapering asset purchases from next month. However, most experts said one should not be too worried about the Fed taper because India had robust foreign exchange reserves of $637.47 billion as of October 1.

They said Indian equities will be strong for at least the next 3-5 years following initiatives taken by the government since the outbreak of Covid-19, including Atmanirbhar Bharat schemes, production-linked incentives for various sectors, increased infrastructure spending and easing of rules and regulations to attract more foreign direct investment.

The Nifty 50 climbed to a record 18,041.95 on October 11.

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“The resilience of the market in general and the momentum in the broader market in particular can be explained only by one factor – the exuberance and dominance of newbie retail investors,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services. “Yesterday, the Nifty rose 50 points when FIIs and DIIs sold equity worth Rs 1,303 crore and Rs 373 crore, respectively. Institutional selling is easily getting absorbed by retail investors who are not concerned about valuations.”

According to Sandeep Matta, founder of TRADEIT Investment Advisor, the rally in the Indian stock market is special because it was achieved despite muted global clues, the global energy crisis, threat of inflation and muted FII participation.

The BSE Sensex added more than 34,000 points and the Nifty 50 more than 10,000 points from their March 2020 lows to cross 60,000 and 18,000 levels, respectively, in October.

The broader markets moved ahead of the benchmarks in terms of returns in later buying as the Nifty Midcap 100 and Smallcap 100 indices surged 188 percent and 240 percent, respectively, in the same period.

Also readAs Nifty climbs 8,000 points, 252 stocks turn multibaggers in 16 months

Corporate earnings over the past 3-4 quarters have been in line or better than expected. The Reserve Bank of India, at its October policy meeting, retained its economic growth forecast at 9.5 percent for FY22, given the declining Covid-19 cases and the vaccination drive across the country. However, rising oil prices are being watched closely.

Experts said Indian equities are in the initial phase of a bull run that may lift the Nifty 50 past the 21,000 mark before any major reversal.

“We are in the initial phase of the exuberant bull run, which is well-supported by earning improvements, record tax collections and participation of new investors and will surely help the Nifty make new highs in the upcoming months,” said Matta of TRADEIT Investment Advisor. “There is no sign of topping out yet.”

He said the bull run may take Nifty 50 to 21,000 level “before witnessing a significant correction”. Core segments such as banks, auto and financial sectors are driving the rally now and ready to take the Nifty to higher levels, he said.

There could be a “few corrective sessions” and they will be considered as buying opportunities, Matta added.

Some experts are cautious due to the significant run-up in a short period. They said if corporate earnings disappoint, oil prices spike further and an unknown factor appears globally, the rally could falter.

Brent crude was down 6 cents at $83.59 a barrel at 0440 GMT on October 12, after touching three-year highs a day earlier. India is a net importer of oil and rising oil prices pose an inflation risk.

Also readDaily Voice| Stage is set for a gradual fiscal consolidation, says Rupen Rajguru of Julius Baer

“With most good news priced in, prices are left more vulnerable to disappointment in earnings reports. Investors are advised to remain cautious with stock-specific decisions in the near term, while the positive outlook for the broader markets in the medium term remains intact,” said Nirav Karkera, head of research at Fisdom.

“The Nifty index crossing 18,000 levels marks the continuation of the bull phase in the Indian markets,” said Mohit Ralhan, managing partner of TIW Private Equity. “There are strong positive sentiments on the domestic front even though global cues point towards increasing risks. Central banks across the world are expected to unwind their balance sheet expansion sooner than later to counter increasing inflation. In addition, this earnings season in India is going to be extremely critical, given that the P/E of Nifty is above 27x and earnings need to keep pace with the same”

Vijayakumar of Geojit said crude oil at $84 a barrel and its potential inflation fallout are areas of concern.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before making any investment decisions.
Sunil Shankar Matkar
first published: Oct 12, 2021 03:27 pm

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