Nifty 50 to hit 14,600 by Dec 2021; fall in volatility to boost mid-, smallcap rally in 2021

Indian share markets are logging fresh record highs as economic activities resume to pre-COVID-19 levels. The GST collection also improved for the second consecutive month in November, which is another sign of recovery in the economy. Research and brokerage firm Axis Securities expects NSE Nifty 50 to hit 14,600 points by December 2021. The brokerage firm added that the earnings scenario has also improved with the majority of quarterly earnings of the current fiscal beating expectations. “34 out of 50 Nifty companies have beaten the Street estimates at EPS level,” it said.

Axis Securities has upgraded its FY21 EPS by 6 per cent and FY22 EPS by 8 per cent. “We value Nifty at 20x at FY23 earnings translating to our December 2021 target for Nifty at 14,600,” the brokerage firm said. On a year-to-date (YTD) basis, defensive stocks have been the winners: Pharma stocks surged 45 per cent; and IT shares rose 33 per cent. On the other hand, NBFCs were down by 5 per cent, Banks by 1 per cent, Industrials and Metals by 3 per cent on YTD basis.

The brokerage firm noted that in the last few months, the entire market narrative was positioned towards defensive plays with IT and pharma stocks outperforming the market. However, recovery was seen in BFSI, Auto, Metals, Cyclicals (Ex Reliance), which also started outperforming in the month of November. The BFSI sector was on backseat till October and outperformed the broader market with improved fundamentals in the month of November.

Mid-, smallcaps picking up steam

Axis Securities in its report highlighted that from a valuation perspective, midcaps look attractive as compared to large caps. During the bull phase of 2017, midcaps were seen trading with 45 per cent premium to large caps. Analysts at the brokerage firms believe that the recent spate of IPOs and their success indicates that the appetite for mid and smallcap stocks. “Our case for two year rolling returns indicates that the market has turned in favour of small and midcap stocks which are more reasonably valued and offer greater upside potential,” it added.

The brokerage firm also said that the new guidelines by capital market regulator Securities and Exchange Board of India (SEBI) on multicap funds has tilted the favour in case of mid and small cap stocks which will keep the space in vogue over the medium term. Axis Securities highlighted that in the month of November, smallcaps and midcaps are picking up steam and they should deliver solid returns in 2021 as economic uncertainties will reduce and volatility will decline. “We believe volatility will decline significantly in 2021 which will lead to a small and mid cap rally,” it added.