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Top brokerages see Nifty at 14,000 by next year, what should you do?

The Nifty has seen a stellar rise after sinking to 7,500 in late March 2020, with the benchmark index gaining about 74 percent in the last eight months to go past 13,000.

November 25, 2020 / 11:42 AM IST

The Nifty that touched an all-time high of 13,055 on November 24 is not done yet, at least that is what top brokerages think. They see a further possibility of gains in the index after the COVID-19 vaccine arrives and the economy picks up.

In March 2020, when the coronavirus was battering the globe, equity markets witnessed a series of selloffs. The Nifty has seen a stellar rise after sinking to 7,500 in late March, with the benchmark index gaining about 74 percent in the last eight months to go past 13,000.

Other than abundant liquidity, hopes of vaccine, better quarterly earnings and government measures to shore up the economy have supported the market's ascent.

14,000 by 2021!

Weeks ago, global brokerage house Goldman Sachs upgraded India to 'overweight' and said the Nifty50 may hit 14,100 by 2021-end.

The market has moved higher as investors gained confidence in improving economic momentum, Goldman Sachs noted in the report.

The global brokerage said it expects corporate profits to rebound 27 percent in 2021 and a further 21 percent in 2022, adding macro recovery had gathered momentum.

Brokerage firm Prabhudas Lilladher is bullish on the Indian market and expects the Nifty to hit 14,407 in 15 months.

The brokerage firm values Nifty FY23 at EPS of Rs 724 at a 10-year average PE of 19.9 and arrives at a 15-month target of 14,407 (13,830 based on 19.9 times FY23 EPS of 695).

In the bull case scenario, the Nifty may even touch the 18,000-mark, it said.

"Although the Nifty has traded at 27 times recently, we continue to take the earlier peak of 25 times and arrive at bull case target of 18,094 (16,680 earlier). Economic revival, sustained global liquidity, low-interest environment and control of COVID-19 pandemic is key to the bull case scenario," Prabhudas Lilladher said.

Nomura is of the view that the Nifty may hit 13,640 by December 2021.

The brokerage said the improvement in sentiment around the pandemic and improving high-frequency growth indicators and corporate earnings as the economy opens up could lead to the market overlooking potential growth concerns that can emerge over time.

"Factoring in 4-5 percent risk to FY22/23 consensus earnings estimates and using 19 times on December-22 earnings, we arrive at December-21 Nifty target of 13,640, implying upside of 7 percent from the current levels. Upside risk to our target multiple in the near-term remains, on the back of strong capital flows," said Nomura in a note on November 12.

What should you do?

While the long-term outlook of the Nifty is promising, a correction in the short term cannot be ruled out. Analysts advise to be prudent in stock-picking and not to get carried away.

"There is a wall of liquidity. However, one needs to be cautious as there may be a faster correction in the market but equities remain the best asset class for the next two years," said Sanjiv Bhasin, Director at IIFL Securities.

"December may be a difficult month. I think 13,000-13,200 would be the top for the market by the end of December. This had been our target since the market was near the 8,000 level," said Bhasin.

Market experts are of the view there may be corrections to keep the valuations healthy but these corrections should be bought in.

Also, the September quarter earnings turned out to be better-than-expected. Now, the December quarter numbers will be on the radar as it will portray the clear picture of how much COVID-19 dented the banking sector.

Much will also depend on how the macroeconomy fares in the months to come. There are high hopes that the global economy will recover at a faster pace. If this hope is punctured, it may roil the market.

The rally has pushed the market cap-to-GDP number beyond 80 percent, much higher than the long-term average of 75 percent.

"While m-cap to GDP above 80 percent certainly raises concern about valuations, we should not forget that visibility of sharp earnings revival after GFS in FY10 took m-cap to GDP at nearly 100 percent," Binod Modi, Head Strategy at Reliance Securities told Moneycontrol.

As long as earnings growth visibility remains, chances of heavy selloff are unlikely, he said. However, investors should be cautiously optimistic about the market and bet only on quality.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.

Nishant Kumar
first published: Nov 25, 2020 11:42 am