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Kotak Securities Ltd (KSL) sees Nifty50 ending calendar year 2021 at 13,500 and BSE Sensex at 46,000 – almost flat to the levels trading today – even as it expects the entire upcoming year to be a roller coaster for the capital markets.
Global liquidity and FII flows, which are likely to remain strong at $15-20 billion in calendar year 2021, are expected to drive markets. This coupled with weak dollar index and healthy earnings growth could keep valuations at elevated levels in the first half of calendar year 2021, said Jaideep Hansraj, Managing Director & CEO, KSL.
In calendar year 2020, despite a difficult year, FII inflows into India year to date touched robust $19 billion.
Moderation in monetary policy
Sharing the brokerage house market outlook for 2021, Hansraj said that KSL expects moderation in monetary policies and rising yields scenario in second half of calendar 2021, which will lead to mean reversion of valuations towards 10/15 year averages.
“Based on our valuation benchmarks of average market cap/GDP ratio of 83-84 per cent and average linkage with Bond PE and historic PE range, we value Nifty50 at 19 times forward basis to arrive at our CY21 index target. We expect Nifty50 to end CY21 at 13,500 and BSE Sensex at 46,000”, Hansraj said.
Large-caps still favourites
KSL clearly prefers large caps over mid caps on back of strong FII flows and valuations. Banks, capital goods, oil & gas, cement, power and metals and mining are KSL’s favourites for 2021.
Among defensive, select FMCG companies could also do well, the brokerage house said.
“With the way markets have risen in the last 2-3 months, it is a good call that index will remain flat at the end of next year. Shift we have seen in various sectors will also happen in calendar 2021. It’s possible that index movement may not happen significantly in 2021, but people who are in stocks directly could see returns happening by doing smart switch”, Hansraj said.
KSL is of the view that one needs to tap stock specific opportunities rather than focus on index. The entire equity market rally in 2020 has been driven by FII flows, which has been function of all the liberal central bank monetary policy actions and governments in the fallout of Covid-19. Once the vaccine gets rolled out in the first half of next calendar year, one may see hardening of yield rates in the second half as accommodative stance gets withdrawn, he pointed out.
However, KSL is expecting the first half of 2021 to be very good and index touching 14,500.
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