Stock market rally to continue in 2021 and Nifty may hit 15,000, conditions apply

The year 2020 began on a strong note and it is ending also on a strong note for equities.

The bull run is likely to continue in the year 2021 and benchmark indices - Sensex and Nifty - look poised to scale unprecedented highs.

JPMorgan expects Nifty to cross 15,000 by December 2021. Meanwhile, global brokerage firm BNP Paribas expects Sensex to hit 50,500 in the year 2021.

Liquidity is one major factor that is responsible for the current rise in equities, JPMorgan said.

“Indian equities are being dragged up by the global tide. On a 2-year forward basis, MSCI India is up 2.6 std. deviation higher than average P/E,” it said.

The uncertainty of the US elections seems over, and vaccine approvals are imminent. Central banks are executing ‘QE Squared’ (an estimated $300 billion+ a month through 2021), the report added.

Read more: Nifty could cross 15,000 by December 2021

On similar lines, brokerage firm BNP Paribas is overweight on India and believes the availability of vaccine should push up consumption and investment globally.

Read more: Sensex may hit 50,500 in 2021 but the ride can be bumpy, says BNP Paribas

A Reuters' poll of analysts showed India's stock market rally will continue and hit new record highs in 2021.

Conditions apply

The road ahead for the market is not free of bumps as a lot will depend on the COVID situation, government measures and geopolitical scenario.

In its recent report, brokerage firm BNP Paribas underscored five potential speedbumps on the way - (1) a less effective vaccine, (2) inflation, (3) geopolitical risks, (4) policy risk, and (5) valuations.

"If the COVID vaccines are less effective than what we believe, in suppressing the pandemic or if administering the vaccine gets delayed beyond what we expect, or if improvements in economic conditions lead policy-makers to phase out stimuli prematurely – it would belie our economists’ expectation of a gradual pick-up in inflation. In a scenario where the inflation breakevens decline – our tilt towards value stocks could be at risk," BNP Paribas said.

Talking about the second risk, BNP Paribas said a temporary spike in US inflation and in US yields is not worrisome.

"However, if US real yields increase and the difference between US and EM real yields diverges and such a divergence sustains for longer than what we anticipate, our hypothesis of USD depreciation may unravel. Underestimating the inflationary impact in the US could therefore be the second risk," said the global brokerage firm.

On the geopolitical front, an acceleration in the US-China tensions or Brexit risk could diminish risk appetite significantly and hurt EM equities, BNP Paribas believes.

Policy risk is also a factor that cannot be ignored.

"Investors should be mindful of policy risk in China as well. A premature credit tightening could have a significant adverse impact on asset markets, as the economic recovery is nascent, business confidence remains tenuous and credit defaults have accelerated," said BNP Paribas.

Several analysts believe while the prospects for the market are bright, a lot will depend on how the macroeconomy fares and how the COVID-19 situation pans out globally.

"From the long-term perspective, we remain bullish on Indian markets but Nifty touching 15,000 in the next one year would depend on how the COVID situation pans out ahead and measures government would undertake to expedite the growth amid uncertainty," said Ajit Mishra, VP - Research, Religare Broking.

Indian market, which has rallied by over 50 percent since March-end to fresh record highs in December, could face some consolidation in 2021 as valuations look expensive at current levels, Nikhil Kamath, Co-Founder and CIO, True Beacon and Zerodha told Moneycontrol.

“I think the year 2021 will be range-bound, hopefully, we could see a correction between 5 percent to 10 percent, and that would take it to a more normalized level,” said Kamath.

“If the earnings also slow down in the first quarter of the next financial year, then I think it should bring the markets back to the 12,000 to 12,700-12, 800 kinds of levels, at least,” he said.