Don’t pooh-pooh year-end predictions

KS Badrinarayanan Chennai | Updated on December 11, 2020 Published on December 11, 2020

Expert forecasts most often play out well at the micro level

Predicting market movement is dicey, particularly when it comes to year-end targets for benchmarks. It is a different thing that not many could fathom 2020 as the Covid-19 pandemic, which shut down economies across the globe, caught everyone offguard. The fall in stock and commodity prices in March and the sharp rally since July that lifted prices well beyond pre-Covid levels could not be smart-guessed either.

And forecasting in a trending bull market like the current one is even more difficult as it is impossible to predict what unexpected event can spoil the party.

Despite being well aware of this 'unexpected quotient', analysts make brave calls, mainly based on their experience. Ergo, many analysts from global investment advisory and broking firms have made 2021-end calls for Indian markets as well.

Foreign brokers' OW call

Morgan Stanley, for instance, sees the Sensex hitting 50,000 by December 2021.

Though it had made this prediction last month, the Sensex has climbed over 3,000 points to 46,000 since and the Morgan Stanley target does not seem very far off.

Similarly, Goldman Sachs, US investment advisory firm, in November, had upgraded Indian equities to 'overweight' from 'market-weight', and set a Nifty-50 target of 14,100 by 2021 end.

Japan-based Nomurasees Nifty-50 hitting 13,640 by 2021 end. On Friday, the Nifty closed at 13.513.85.

TINA factor

Macquarie’s Asia equity strategist Viktor Shvets is 'overweight' on India by 60 basis points, down from 130 basis points in December 2019. However, according to Shvets, India is the most expensive emerging market with one of the deepest likely downgrade cycles.

According to him, lack of alternatives vis-a-vis India, a vast domestic market and an increase in India's weight in emerging markets as more Chinese names are blacklisted by the ESG criteria, societal values and trustees of investment funds are key factors for going ‘overweight’.

For Goldman Sachs, improving domestic economic data, stable government and strong foreign institutional inflows are key.

Should we ignore?

Analysts make these predictions based on information available at a particular point in time. As information is dynamic, so will be the market movement.

Instead of dismissing these predictions, investors should go beyond the headline target, as most often their directions play out well at the micro level (sectors and stocks). Besides, these firms will also flag the risks that may escape the attention of the euphoric investor in a bull zone.

And, if the targets are achieved sooner than expected, perhaps it is better to become cautious rather than wait till the end of the bull rally.

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Published on December 11, 2020
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