If that was it, would Calendar 2021 mirror 2010?
To be sure, it took one-and-a-half years for the market to recover fully in 2009-2010. This time, the indices scales new highs within a few months.
Besides, stock valuations are much higher today than they were in 2010, with the indices factoring in a 29 per cent earnings growth for FY22!
Yet, Dalal Street is sounding super bullish for the year ahead. In the ETMarkets New Year Survey, brokerages set very ambitious yearend targets for Sensex, with some going as high as 51,500. For Nifty, the highest target was 15,100. That’s when they sounded worried about rising stock valuations.
“The trend is expected to be positive in 2021. But it may not be completely in line with the rally seen in 2009-10, since a lot has already been factored in. The silver lining is: this crisis is not expected to turn into a bubble, leading to another Global Financial Crisis and big stimulus packages will support liquidity and earnings growth in 2021. We have our yearend Nifty target set at 14,500,” said Vinod Nair, Head of Research at Geojit Financial Services.
After rising 81 per cent in 2009, the BSE Sensex had gained another 17 per cent in 2010. In 2020, BSE Sensex is up 83 per cent so far from March lows, and 13 per cent for so far this calendar.
Deepak Jasani, Head of Retail Research of HDFC Securities, however, is a bit reticent. He said the market is back to pre-fall levels, and hence, it may be a bit too much to expect a sharp rise from here on.
“The market may still rise some more; but the risks will also keep on rising,” he said.
To put things in perspective, benchmark Sensex has gained over 12 per cent so far this year, and is on course to deliver positive returns for the fifth successive calendar year.
“Valuations have turned expensive after the phenomenal recovery in the last nine months,” said Ajit Mishra, VP Research of Religare Broking. He expects some profit taking ahead followed by consolidation initially, and recovery later in the year based on earnings rebound.
“We expect the prevailing uptrend to continue into 2021. Considering the current scenario, Sensex and Nifty have the potential to go above 48,000 and 14,500 levels, respectively,” he said.
AK Prabhakar of IDBI Capital says anything is possible in this market. With high global liquidity sustaining, he said Nifty50 to touch the 15,000 mark and Sensex to hit 51,000 by the end of 2021.
Vinit Bolinjkar, Head of Research at Ventura Securities, is the biggest bull of the lot. He is predicting Sensex to scale 51,500 and Nifty to top 15,100, thanks mainly to the flush of liquidity and better-than-expected recovery in businesses.
Nirali Shah, Senior Research Analyst at Samco Securities, said the domestic market is trading at a P/E of around 37 times, which is higher than the P/E value of 22 times seen way back in 2010.
Calendar 2021 is likely to see a mix of corrections and bullish price trends, and Nifty could trade in a wider range between 12,500 and 14,000 levels, he said.
Rusmik Oza of Kotak Securities said the recent runup in the market has fully captured a 29 per cent earnings growth expected in FY22.
Near-term valuations, he said, look stretched, but they look reasonable from a two-year perspective i.e. on FY23 earnings basis.
“Strong global liquidity and FII flows can keep valuations and the indices at elevated levels in the first half of the Calendar. Going into the second half, we expect the global tailwinds to fade out as central banks start withdrawing accommodative monetary policies. Market rates could harden across the curve in the second half, with 10-year government securities yield inching higher. That time, we can expect valuations to gradually mean-revert towards their 10-year averages,” Oza said.
G Chokkalingam, Founder at Equinomics Research and Advisory, said the market has become ‘corona positive’ as the BSE’s market value has risen 16 per cent to around Rs 186 lakh crore from the pre-lockdown level of Rs 159 lakh crore.
“However, the domestic economy is not ‘corona positive’. The GDP is expected to degrow 7-8 per cent in FY2021. Even if the growth rate bounces back to 9 per cent in FY2022, the absolute GDP level in FY2022 would be the same as what we saw in FY2020! The valuations of the benchmark indices have moved up as much as 30 per cent from FY2020 levels. This is not sustainable,” he said.
Chokkalingam expects the domestic equity market to correct at least 10 per cent before June quarter earnings, 2021.
“And then the market may once again bounce back, as June quarter results will benefit from the low arithmetic base of the June quarter of 2020. Both Sensex and Nifty should give an annual return of around 7-8 per cent and should hit 51,000 and 15,000 levels, respectively, by the end of 2021,” he said.
Naveen Kulkarni, Chief Investment Officer of Axis Securities, has set his yearend target for Nifty at 14,600. Gaurav Dua of Sharekhan sees 12-15 per cent gains for the indices with some hiccups.
Gaurav Garg, Head of Research at CapitalVia Global Research, said the global economy is expected to improve in the near future on the back of central bank support and resumption of economic activities.
“The availability of Covid vaccines is likely to drive consumption and investments going forward. The long-term outlook is bullish. We expect 12 to 15 per cent rally in the benchmark indices in the new calendar year,” he said.
