Nifty may not repeat the feat of CY20 this year; here's why

At first glance, it appears that Nifty will top the level of 15,000 in the calendar year 2021 easily; the index is already above 14,000 mark and the market is teeming with positivity.

The journey of the index in the year 2020 was phenomenal. From the March lows, it surged 85 percent to trade at a record high level by the end of the year even as the gloom of COVID-19 persisted. For the year, the index rose 15 percent.

While analysts and brokerages are positive about the market, they also hint that we may not see a similar kind of sharp movement in Nifty in 2021 that we saw in 2020 in which the index jumped to all-time highs from 7,511 odd levels.

"Most of the positives in terms of vaccine and economic recovery is already priced in the market. From the current levels, we may see a 7-8 percent rise in Nifty in 2021," said G. Chokkalingam, Founder and MD, Equinomics Research & Advisory.

"The overall market-capitalisation of BSE has breached Rs 189 lakh crore, a rise of 85 percent from March 23, 2020, bottom. Most of the frontline stocks are trading at record valuations. We still have some fear that the domestic market may see some correction before June 2020 as valuations for many frontline stocks are stretched and many small-cap stocks have entered the bubble zone," Chokkalingam said.

Of late, the market has been euphoric on the prospects of a rebound in the economy. However, considering the fall in GDP prints in FY21, the real growth in FY22 will be just about 2 percent.

"Indian economy is projected to decline by 7.5 percent in FY21 and recover by 10 percent in FY2022. Even with 10 percent recovery in GDP in FY22, the absolute GDP in FY22 would be just about 1.8 percent higher than the absolute GDP posted in FY20," said Chokkalingam.

"We continue to believe that such a feeble growth on two-year-old GDP base would ultimately have a significant pressures on the aggregate demand system in the country. As we have been arguing repeatedly, the domestic market doesn’t have an appetite to absorb any major selling by the FIIs without markets falling very badly," said Chokkalingam.

Chokkalingam advises not to compromise on valuation multiples and if any stock has risen say 3 to 5 times, one should be sure about their valuation comfort. Besides, Chokkalingam advises checking their past track record – whether they hit bubble zone and subsequently crashed in the previous bull markets.

The market remained aloft on liquidity doses and sustained FII inflow in CY20, while signs of economic recovery and vaccine talks underpinned the sentiment.

In CY21 too, a lot will depend on foreign fund inflow and if the low rate regime comes to an end after inflation spikes and economy improves, bulls will find it difficult to keep control on the market.

Rusmik Oza, Executive Vice President, Head of Fundamental Research at Kotak Securities, expects Nifty to go anywhere between 14,000 and 15,000 range sometime in the first quarter of CY21.

Post Budget and Q4 result season, markets may go into some kind of consolidation phase and witness time correction, Oza believes.

"We expect moderation in monetary policies and rising yields scenario in H2CY21, which will lead to mean reversion of valuations towards 10/15 year averages. We have used the previous 15 years peak of 19 times Fw PE multiple to value the Nifty50 to derive at our CY21 end target. We expect Nifty50 to end CY21 somewhere near 13,500 and BSE Sensex to end at near 46,000," Oza said.

Brokerage firm ICICI Direct pointed out with the worst of asset quality concerns behind us amid resolution of big-ticket stressed assets and economic optimism in the post-COVID era, Nifty earnings CAGR is impressively placed at 22.7 percent in FY21E-23E.

"We value the Nifty at 14,400 i.e. 20 times P/E on FY23E EPS of Rs 720 with corresponding Sensex target at 50,000," said ICICI Direct.

The brokerage firm added that after a V-shaped recovery and a flush of liquidity in the capital markets in CY20, the economic recovery path ahead is likely to be uneven. Furthermore, rising commodity price-led inflation and new strain-led risk of restrictions and lockdowns, also persist.

The Nifty50 index may trade in the range of 14,000-15,000 in the year 2021, according to a poll of analysts conducted by Moneycontrol.

Almost 47 percent of total respondents of the analysts' poll believe the index may trade in the range of 14,000-15,000 during the year 2021. Some 33 percent of the total respondents are of the view Nifty may hover anywhere between 13,500-14,500 and the rest 20 percent believes Nifty may top 15,000 mark.

CY21 is expected to augur well for the market. However, considering the steep valuation, a healthy correction cannot be ruled out. The key to reaping gains and avoiding losses is to remain stock-specific.