Has the Nifty topped out or will it head higher?

Ridham Desai, Managing Director, Morgan Stanley India

We believe COVID-19 infections appear to have peaked, high-frequency growth indicators are coming in strong, government policy action is beating expectations and Indian companies are picking up activity through the pandemic. We expect the economy to grow based on the following four factors: gradual normalisation in economic activity; resilience in the rural economy, helped by good weather and government spending; an accommodative monetary policy environment; and less drag from exports. Thus, we expect growth to surprise on the upside, rates trough to be behind, and real rates to remain in negative territory for several months. We feel the coming growth cycle is not fully priced in and, thus, see more upside to the index. We also think portfolio returns are more likely to be driven by bottom-up stock picking rather than top-down macro forces. We expect domestic cyclicals to outperform exports, with rate-sensitives and consumers outperforming whereas energy should underperform. As per our estimates, the Sensex will be trading at 16x forward earnings at our new target of 50,000 in December 2021 against our old index target of 37,300 for June 2021. On trailing P/E, the Sensex will be 19.3x, in line with the 25-year average of 19.7x. We expect the broad market (small- and mid-caps) to beat the narrow indices or large caps in 2021 because we think concentration of market cap and profits may have peaked with the return of the growth cycle.

Shankar Sharma, Vice Chairman, First Global

A rally of this kind has never gone on without a significant pullback. You cannot have a situation where the market has rallied 50% in such a short span of time and not have some correction. But, what’s interesting to note is that the Indian market has given 0% return for the year. It has has done exactly how Saudi Arabia has performed and a shade better than Pakistan. We remain one of the worst-performing markets for the year. What we are looking at is akin to a stock that was Rs.100 gone down to Rs.20 back to Rs.100. So, while we saw sign of furious activity, the displacement is zero. For nearly three years, give or take a couple of percent, the market is exactly where it was. Also the 45 days of rally that we have seen is just by one sector and it is banks. So, it’s just a laggard rally in a market where everything else is flat or negative. Pharma and IT, which till sometime back were at the forefront, are down 15-20%. So fundamentally, nothing has altered India or globally, everywhere hotel, airline, and banking stocks have gained. I believe easy money has been made and now the road ahead is a slow and grinding one. At this point, one should take a conservative rather than an aggressive position. It’s time to lock in some gains as investing is never about working on the extremes, you can never go 100% cash or stay 100% invested. Though the market could rally further, I believe by December-January you could see a 10% fall, but high beta stocks could fall much higher.