Markets have rallied 80% from March lows and gained 11% so far in 2020 but foreign brokerage JP Morgan sees more room for upside in Indian equities. The brokerage expects the Nifty to cross 15,000 by December 2021. However, the brokerage believes that it is possible only if the current extended price-to-earnings multiples sustain.
JP Morgan said the Indian economy does not appear strong enough to drive upgrades on already lofty earnings forecasts. “The Indian economy has recovered rapidly so far, but consumer confidence and incomes/wages remain poor. Monetary policy is already as accommodative as it likely will be; a large fiscal impulse seems doubtful,” said JP Morgan. “Headline GDP numbers will look strong on a low base, but activity may not be strong enough to drive broad earnings upgrades,” said JP Morgan.
The brokerage said the uncertainty of the US Presidential election seems over, vaccine approvals are imminent and central banks are executing ‘QE squared’. “This narrative is currently self reinforcing – Indian equities are being dragged up by the global tide. On a 2-year forward basis, MSCI India is 2.6 std. deviations higher than average P/E (close to 15 year highs), but is at an average P/E premium to EM,” said JP Morgan.
Yesterday, Markets managed to end marginally in the green amid consolidation bias. The benchmark opened on a positive note, tracking supportive global cues and also in reaction to better than expected IIP data. As the day progressed, profit-taking pulled the index lower but the recovery in the latter half helped the bulls to regain control. Consequently, The Nifty ended higher by 0.3% at 13,558 levels. The broader markets outperformed with both Midcap and Smallcap ending higher by 0.7% each. A mixed trend was witnessed on the sectoral front wherein auto, realty and telecom ended with losses whereas capital goods, oil & gas and metal were the top gainers.
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Analysts are positive yet maintain a cautious approach and suggest limiting overnight leveraged trades. Interestingly, the banking pack, which holds considerable weightage in the index, is still holding strong and the other sectors are also seeing buying interest on every dip. Traders should align their position according to the market trend and avoid contrarian trades unless they see some sign of a reversal in price itself.