Underpinned by a sustained liquidity boost, better than widely expected economic recovery and strong quarterly earnings, the Indian equity market is soaring higher.
The upward march of key equity indices Sensex and Nifty, after the March 2020 lows, remains unabated and both are now scaling fresh record highs after every couple of sessions.
The forward-looking market is happy about the prospects of strong economic recovery and earnings upgrades.
The December quarter earnings, so far, have seen more hits than misses due to a recovery in demand after the opening up of the economy and the significant drop in coronavirus infections.
The cost-saving initiatives and the festival season demand also helped India Inc to post a strong quarterly scorecard. The Q3FY21 earnings have maintained the momentum of the previous quarter.
“There has been a 3.9 percent/2 percent upgrade in FY21/FY22E Nifty EPS estimates to Rs 536/Rs 713 (from Rs 516/Rs 699). We are now building in Nifty EPS growth of 15 percent for FY21E,” said Motilal Oswal Financial Services.
The Union Budget 2021 has given a fresh boost to bulls as the market benchmark Sensex ended in the red for only two sessions after the Budget day, February 1. Sensex has gained nearly 13 percent in the month of
February so far.
A good Budget which was in-line with the expectations, strong Q3 numbers by India Inc, high institutional inflows, and easing COVID-19 situation with global vaccination drive are cheering the market.
The rally to extend
The bull run in the market may continue for a longer time while occasional cooling off cannot be ruled out.
Positive global cues and foreign fund inflows may continue to support the market while there are slim chances that the market will see the dearth of liquidity anytime soon.
In February so far, foreign institutional investors (FIIs) have pumped in more than Rs 21,000 crore in the Indian equity market and this trend may continue.
FPIs turned slightly cautious ahead of Union Budget 2021 but turned bullish after the Budget promised to push the economy back into the double-digit growth phase.
“We are in one of the most ferocious bull markets that we are going to experience in this decade because we have a combination of fiscal expansion and benign liquidity that is going on in the economy,” Pankaj
Murarka, the founder of Renaissance Investment Managers, told CNBC-TV18.
“After almost a decade, we are seeing a strong resurgence in corporate earnings coming back so if you look back it took 10 years for Nifty to double its earnings over the last decade from 2010 to 2020, and this time I think we will do it in the next five years you will get again double earnings,” he added.
Gaurav Garg, Head of Research at CapitalVia Global Research, also believes that this momentum might continue as there seems to be nothing which is negative for the markets as of now.
He believes Nifty might touch 15,800 by March 2021.
Jay Thakkar – VP & Head of Equity Research at Marwadi Shares and Finance believes the market may inch towards 53,500 in the near-term whereas 51,200 is now crucial support on the lower side.
As the underlying sentiment is bullish, analysts advise buying quality stocks on every dip.
“Investors should be positively biased and any dip can be considered as a buying opportunity. Investors sitting on good profit can continue to hold on to their profits for some more time with a revision in their stop-loss,” Garg of CapitalVia Global Research said.
Some caution is also required as the market tends to see some profit-booking at high levels.
“Investors need to be cautious at these levels and must bet on quality names with robust earnings visibility and margins of safety,” said Binod Modi, Head – Strategy at Reliance Securities.
Sectors to bet on
The gains can be maximised in such a market if we bet on the sectors that are likely to perform better owing to budgetary measures and economic recovery.
“In our view, beneficiaries of high CAPEX like infrastructure, industrials, engineering, building materials, select auto and banks are likely to outperform markets in the medium-term,” Modi of Reliance Securities said.
Naveen Kulkarni, Chief Investment Officer, Axis Securities, is of the view that a higher beta portfolio will do well in this market.
“BFSI should be the top sector in the portfolio, followed by discretionary, cyclicals and some allocation to industries. Also, digital is an evergreen theme and a significant allocation to the IT sector should be maintained,” he said.
Thakkar of Marwadi Shares and Finance believes that six sectors – auto, IT, pharma, infrastructure, cement and chemicals – are likely to outperform from hereon.
“If the investors are holding stocks from any of these sectors, they can continue to hold on with a revised target and stop-loss if the estimated target is revised upwards. Those stocks which fall under the above category but don’t have much higher revised targets on the upside should be exited in profit and some other stocks from these sectors should be added which are relatively available at cheaper valuations,” Thakkar said.
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