Market May Still Have Some Steam Left, Analysts Positive On Mid, Small-Caps, Private Banks And Metals

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The market has been on a record-breaking spree and it appears that the bulls are not done yet, as the benchmarks Sensex and Nifty have been scaling new highs.

It appears that the Sensex is eyeing the 45,500-mark, while Nifty may hit 13,500 levels.

There is a lot for the market to cheer about—from the rollout of a coronavirus vaccine, improving economic indicators and robust FII inflows.

Improved prospects of the December quarter earnings have also boosted sentiment. The all-time highs have made market-valuations rich.

Analysts are of the view that sectors such as private banks, select non-banking financial companies (NBFCs), metals and mid and small-caps may still have steam left.

Vinod Nair, Head of Research at Geojit financial services, foresees a good market in 2021 with a decent performance of mid and small-caps that will be driven by the twin benefit of liquidity and earnings growth.

"More fiscal and monetary stimulus is expected in 2021. While the economy will be further opened leading to corporate earnings growth but in the short term, we can anticipate consolidation in the market, as much of the benefit is factored led by a sudden bounce in liquidity," Nair said.

Satish Kumar, Head of Equities, Equirus Securities, said that the valuation of the market was the sum of all sectors’ valuations.

"At one end of the spectrum, one will have Hindustan Unilever and on the other end, one can see PSU banks or public sector oil companies like ONGC. That is why saying that the overall market is at peak valuations is not right. Market valuations should also be looked at in terms of bond yields and return on other asset classes," Kumar said.

He said while it was not possible to predict the next 5 percent upside or downside movement in the market, however, the overall trajectory was up.

"As an asset class smallcaps have underperformed the largecaps by a huge margin. We expect this anomaly to correct in the coming days and months," Kumar said.

Binod Modi, Head, Strategy, at Reliance Securities, said the underlying strength of the market remained intact in the backdrop of improving prospects of corporate earnings, which was being validated by improvement in key economic indicators.

A negative real interest rate scenario and dismal return from liquid funds was attracting a large number of investors towards equities.

In such markets, investors must focus on quality names with a sound business model and strong corporate governance. They should also focus on better margins of safety, he said.

Modi favours private banks, NBFCs, metals and real estate from the near-term perspective.

"While current valuations might not result in sharp up move in the Nifty, we believe there are still some pockets which can attract investors. A large number of private banks and NBFCs, which are considered to be direct beneficiaries of the economic rebound, are still trading at reasonable valuations. Additionally, cyclical sectors like metals and real estate are looking good for near to medium-term perspective," Modi said.

Ajit Mishra, VP, Research, Religare Broking, also said that with markets at a record high, it was difficult to find value. “However, we believe banking, select NBFCs and metals still have some steam left. We believe large private sector banks and well-managed NBFCs would continue to strengthen their market share," he said.

The increase in economic activities globally bode well for metal prices and for the companies in the space. The broader market was seeing traction after a long time and some quality midcap and smallcap were also available at reasonable valuations," he added.

First-time investors should focus on blue-chips and invest in these stocks gradually, considering the sharp run-up in the last nine months, Mishra said.

Kumar of Equirus Securities advised buying stocks and not to worry about the market level. "My advice will be to buy stocks with proven earnings growth delivery and clear management focus," Kumar said.