While Sensex and Nifty valuations look expensive and the market is seemingly factoring in a stronger earnings recovery, analysts from a dozen brokerages that took part in the ETMarkets’ pre-Diwali survey said Sensex could rise up to 47,000 level and Nifty50 to 14,000 by next Diwali.
AK Prabhakar of IDBI Capital Markets set a Sensex target of 45,000 and Nifty target of 13,000 by the end of Samvat 2077, the new Hindu accounting year that begins on Diwali
For stock traders and investors, a special symbolic trading session is conducted on Dalal Street on the occasion of Diwali, called Muhurat Trading, marking an auspicious start to the Samvat.
Narendra Solanki, Head of Equity Research at Anand Rathi Shares & Stock Brokers, said given the consensus forecast for Nifty50 earnings and the underlying recovery expectations, one can look at a Nifty target of 14,400 compared with its book value of 13,700.
“A level of around 14,000 on Nifty looks achievable by next Diwali. For Sensex, the target should be about 47,000,” he said.
Jyoti Roy, DVP Equity Strategist at Angel Broking, said it should not be difficult for Nifty and Sensex to scale 13,200 and 45,000 levels, respectively, by next Diwali.
“While the indices may appear expensive based on FY21 EPS estimates, they are trading at just 15 per cent premium to historical average based on one year forward earnings estimates. They are not cheap at current levels, but are also not too expensive either. We believe a 10 per cent upside is very much possible over the next one year,” Roy said.
Nirav Sheth, Chief Executive Officer at Emkay Institutional Equities, projects two indices to rise 8-10 per cent through Next Diwali.
“This, of course, assumes that we do not have any relapse in Covid infections and accompanying lockdowns,” he said.
Ravi Singh, Vice President and Head of Research at Karvy Stock Broking, said given the ongoing bullish trend that sustained the odds in the economy, Nifty should reach the 14,000 mark by the end of Samvat 2077.
Singh said the green shoots in the economy post the unlocking, lower corporate tax rates and the government’s response to sectoral needs in addition to increased economic activity across the world may help the domestic market maintain the bullish trend.
“However for the market to maintain its bullishness through the year, the index should not fall below the 10,600 mark. Below that level, the index may navigate towards the 10,100 mark,” he said.
G Chokkalingam, Founder of Equinomics, says a Sensex target of 45,000 and Nifty target of 13,000 by next Diwal look achievable.
“As per GDP growth estimates for FY21 and FY21, absolute GDP of FY2022 is expected to be less than that in FY2020. Calendar 2021 could see a lot of volatility with downside risks and, that may limit the overall gains to a maximum of 6 per cent for the broad indices next year,” he said.
Top Diwali stock picks from 6 brokerages for Samvat 2077
What does the new Samvat hold?
From extreme pessimism in March 2020, the stock market recovery has been incredible as it inches closer to the previous lifetime high. BSE Sensex is less than 400 points away from its record high of 42,273 scaled on January 20 . Notwithstanding the uncertainty on many economic fronts, analysts believe the worst is over for the capital markets. AK Prabhakar, Head of Research at IDBI Capital Markets, says Sensex can hit 45,000 by next Diwali and investors should give 70 per cent exposure to equities at this point with 20 per cent to bonds and 10 per cent to gold. Analyst says Vikram Samvat 2077 could well be akin to Calendar 2003 from a market standpoint. The 30-share Sensex had jumped five times between July 2003 and December 2008. To make your portfolio future‐ready, here is a list of 50 stocks that six brokerages have picked as their Diwali bets.
Rusmik Oza of Kotak Securities did not set any targets, but offered some insights on index valuations.
He said it is difficult to get a handle on the accurate forward EPS figure that will be in place by November 2021.
“In the past, our usual benchmark for valuing Nifty50 has been 17-18 times on a forward basis. Considering the lower bond yields and higher bond PE, we can increase the benchmark valuations to 18-19 times. Prior to this year, Nifty50 had normally peaked out at 19 times on a forward basis. If we multiply the one-year forward EPS figures of Nifty50 derived from in-house estimates (i.e. Rs 562) with 18-19 times forward PE, we get a 12,500-13,200 range with a median figure of 12,800,” he said.
Binod Modi, Head of Strategy at Reliance Securities, is also wary of current index valuations. He said the index is already trading at a healthy premium to its long-term average 18 times one-year forward earnings.
“The market is factoring in a solid earnings growth of over 30 per cent. Last time, Nifty witnessed such high growth was in FY10 after GFC. The likelihood of skewed government capex in next financial year due to high fiscal deficit and absence of pickup in private capex may pose challenges for such robust earnings growth. We are not very hopeful about a sharp upside in Nifty by next Diwali despite initial green shoots in key economic indicators,” Modi said.
GFC stands for global financial crisis.
Gaurav Garg of CapitalVia, meanwhile, expects the current recovery cycle to last another 4 to 5 months and the market to lose momentum after March quarter earnings. He sees Sensex around 44,000-44,500 and Nifty around 14,000 by next Diwali.
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