'FIIs may take a breather after record inflows in November, expect Nifty at 14,500 by 2021-end'

After more than 70 percent rally in the benchmark indices from March lows, Vinod Nair of Geojit Financial services feels the rally from here on can continue only if FIIs inflows continue and DIIs turn positive from the current redemption pressure.

The recent rally was triggered by liquidity and positive developments on COVID vaccine which can take a break in the short-term, according to him.

On a long-term basis, Geojit has a target of 14,500 for Nifty50 by December 2021. The index rallied from 7,500 to 13,100 in just eight months.

In the recent columns, he advised taking profits given the rally in equities as he turned cautious on the market in the near term.

The Head of Research at Geojit Financial services feels post the high inflows, FIIs may take a breather and check for the next course of fiscal and monetary policy in the US and Europe Union, and development of vaccine, in the next year 2021.

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Vinod Nair

Head of Research|Geojit Financial Services

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  'Rally driven by liquidity and vaccine progress can take a pause on a short-term basis'
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  'Time to be cautious and book profits as sustenance of momentum may be difficult in near-term'
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  Over-optimism from vaccine development and winter effect can bring some volatility in rally

Edited Excerpt:

Q: After more than Rs 65,000 crore of FII inflow in November, the highest every monthly flow, do you expect the flow to slow down in coming days?

Yes, it is highly possible because the sudden bounce in FIIs inflows was triggered by the better-than-anticipated outcome of the US presidential election, leading to risk-on strategy. It unleashed a high amount of funds which was put on hold, along with new money, due to improved outlook for world trade. FIIs inflow was muted from September to October in anticipation of volatility during the US election held in November. Now, post the high inflows, FIIs may take a breather and check for the next course of fiscal and monetary policy in the US and Europe Union and development of a vaccine, in the next year 2021.

Q: What are your expectations frmo overall earnings for the second half of FY21, and FY22, especially after better-than-expected September quarter earnings? Do you think H2FY21 earnings are crucial to deciding further trend?

H2FY21 earnings growth is expected to be good. Please see that, despite the weak H1FY21 on a YoY basis, Nifty50 EPS for full year FY21 is expected to come almost flattish, near to the FY20 EPS. And FY22 is expected to be stronger with earnings forecast of 30 percent growth, for Nifty50. H2FY21 earnings will be crucial to define the trend of the recovery, but a lot of it is factored in the market, as a result, any small setback will impact the market.

Q: Given the spectacular run in the last eight months which took benchmarks to record highs, do you expect major sell-off in coming days? Will December be a consolidation month? And do you expect the Nifty at 15,000 and Sensex at 50,000 by next year or recent high would the top for next one year?

We anticipate a mild consolidation in the coming months since a lot of the gains is factored in the market price. The rally can continue only if FIIs inflows continue and DIIs turn positive from the current redemption pressure. The recent rally was triggered by liquidity and positive developments on vaccine, which can take a break, in the short-term. On a long-term basis we have a target of 14,500 for Nifty50 by December 2021.

Q: Do you think it is still a buy on dip market and why?

Yes, because more fiscal & monetary stimulus will be announced in 2021, the economy will be further opened, triggering earnings growth in 2021 and vaccine will be organised, these will be the best environment for equities.

Q: Should investors continue with the same set of stocks like IT and Pharma which had a strong run in last 8 months or should one look for other sectors for investment which could give strong returns in the coming year?

Yes, IT and Pharma should have a good portion of the equity portfolio, on a long-term basis, because it has got a new place in the world business which can further re-rate the valuation. Other sectors like Banks & Chemical should also get a good mix of the portfolio due to fair valuation and uptick in domestic & international business. Additionally, as the domestic and world economy is expected to grow faster next year, Agri, Auto, Cement, Cyclical and infrastructure sector should also be considered, accordingly.

Q: Banks and NBFCs had a strong run in last few months. Do you think all concerns eased for the sector or should one wait for more data points to invest in the space?

Banks have rallied well in the recent period due to cheap valuation. And many concerns like weakening asset quality, moratorium problem & low credit growth had reduced too. Finance sector reported better operational performance in Q2FY21, and better credit growth is expected in 2021. The biggest challenge was bad loans, for which the outlook is getting better with regulatory support from RBI & Government. Still, NPA level is expected to be high for the next 1-2 years. Due to standstill benefits from RBI, banks didn't recognize further slippages in Q2FY21, but in next 2-3 quarters, NPA can rise. After the recent rally, banks are not as cheap, still on a medium to long-term basis it is a good buy though consolidation can happen in the short-term.