Jefferies sees Nifty50 at 15,800 by Dec’21, favors financial, realty sectors; check top stock picks

The Nifty 50 index is likely to hit 15,800 levels by December 2021, implying a rally of over 12 per cent from the recent record high level, says brokerage firm Jefferies India. It expects NSE’s Nifty to deliver double-digit returns of 12.45 per cent on the back of strong economic revival in 2021/22 aided by housing market revival, and corporate earnings growth of 37 per cent in FY22 and 22 per cent in FY23. “A supportive global backdrop helps us start 2021 with a bullish view on Nifty,” the foreign brokerage firm said in a recent note. It maintains a positive stance on cyclical recovery in India, which it says is due to growing evidence that the housing cycle has bottomed out and is now set for a multi-year upswing.

Equity analysts Mahesh Nandurkar and Abhinav Sinha noted that currently Nifty trades at 22.3x 12M forward earnings. Their Nifty target of 15,800 implies a 20x 12M forward PE – 10 per cent derating from the current level. The analysts believe that favourable global backdrop should continue to drive foreign inflows. “We expect overall domestic retail participation (including direct participation) will be supportive,” analysts said. The top 10 stock picks of Jefferies India are Housing Development Finance Corporation (HDFC), ICICI Bank, Godrej Properties, ACC, Hindustan Unilever Ltd (HUL), Concor, Maruti Suzuki, L&T, Tata Steel and Dixon Technologies.

In 2020, the Nifty 50 index gained 15 per cent. It was seen that its performance was substantially improved in the second half of 2020 with the gradual reopening of the economy post India’s strict lockdowns restrictions. The analysts see India’s likely superior growth profile in 2021 (with the strictest lockdown in base). “Also, the market having seen much higher PE premiums earlier, means that India is not relatively very expensive and as such has room for further outperformance in 2021,” they noted.

Rise in CAD will be negative for stock markets

Jefferies India also noted that the Reserve Bank of India (RBI) for now has chosen to look through higher inflation as they are in growth support mode. However, once the growth revival becomes more apparent, by mid-2021, the central banks would no longer be able to ignore inflation. The report also highlighted that if the current spike in commodity prices continues to sustain by then and/or there is a sharp jump in oil prices, India could be seeing persistent inflation and rising current account deficit. “This could force the RBI by reducing the liquidity support and later raising the interest rates. The same would be a market negative event as multiples could readjust,” it said.

Mid-caps underperformance has reversed

In the context of broader markets, Jefferies India said midcap underperformance has reversed. It believes that the continued easy global liquidity and expected cyclical recovery in India should be a supportive environment for mid-caps. The brokerage’s analysis of past performance suggests that mid-caps have tended to outperform large caps when growth accelerates in India or is trending high. “With GDP growth rising to 13% in FY22, and broad-basing happens in economic activity thanks to a cyclical pick-up in property, mid-caps should do well,” it said.

“2021 is likely to mark the turn in the property cycle which is likely to benefit companies across the value chain,” the report said. Among the mid-cap ideas, Jefferies India likes Oberoi Realty, Kajaria Ceramics and Supreme Industries. The other midcap picks include Varun Beverages, Graphite India, Dixon Technologies, MGL, IGL and Container Corporation of India.