Jefferies Expects Nifty 50 To Hit 15,800 By 2021-End; Suggests 10 Stock Picks
Jefferies expects NSE’s Nifty 50 index to touch 15,800 by the end of the year, aided by an economic revival, improved earnings growth and a recovery in the housing sector, among others.
“We maintain our positive stance on the cyclical recovery in India, thanks to growing evidence that the housing cycle has bottomed out and is now set for a multi-year upswing,” Mahesh Nandurkar of Jefferies said in a note. The research firm is overweight on banks, property, materials and industrials, neutral on pharma, energy, discretionary, while it’s underweight on staples, utilities, IT services and telecom.
Jefferies has listed HDFC Ltd., ICICI Bank Ltd., Godrej Properties Ltd., ACC Ltd., Hindustan Unilever Ltd., Container Corporation of India Ltd., Maruti Ltd., Larsen & Toubro Ltd., Tata Steel Ltd., and Dixon Technologies Ltd. as its top 10 picks for the year.
India’s equities have had a dramatic run in 2020 as they witnessed the worst selloff in more than a decade triggered by the coronavirus pandemic and then rebounded to scale new peaks. The Nifty 50 for the first time breached the 13,000-mark in November-end, and then just in 26 sessions crossed 14,000.
The recovery, that came on the back of monetary and fiscal stimulus, sustained foreign inflows and hopes of a quicker-than-expected turnaround led by a Covid-19 vaccine, prompted investors, analysts and global financial service providers to bet on the domestic market. Gautam Shah, founder of Goldilocks Premium Research had in an interview told BloombergQuint that the Nifty 50 was set to touch 15,500 in 2021 but after a brief drop in January.
Here’s what the brokerage is projecting for 2021:
Long-Term Property Market Upcycle
- Long period of sluggishness along with a very low base. “We believe that a longer cyclical upturn is now underway.”
- Expects sales in 2021 to exceed the 2018-19 levels by about 10%, nearly double over the year earlier.
- Government policies have turned supportive for the housing sector.
- Affordability is the key driver, along with home loan rates that are near all-time lows.
- Expects residential inventory to decline to 8-10 quarters or 25-30 months in 2021.
- The consensus Nifty earnings growth expectations for FY22/FY23 are at 37% and 22%, respectively.
- Expects strong earnings growth over FY22-23 to be seen in discretionary/autos, industrials, materials and financials sectors.
- Metals and cement are also set to see double-digit earnings growth in FY22 at 93% and 25% as both pricing and volume improve year-on-year.
- Cyclical recovery can drive a corporate profit cycle upturn.
- Expects 33-65% earnings growth for large corporate banks like ICICI Bank, Axis Bank and State Bank of India.
- Bajaj Auto, Hero MotoCorp, Eicher Motors and Maruti Suzuki may see 24-66% earnings growth.
- Metal companies like JSW Steel, Hindalco and Tata Steel may see more than 50% earnings growth on the back of rising steel prices and low volumes in base.
- Margin expansion to be a driver for select domestic sectors.
- Asset quality trends of banks will improve.
- Fresh non-performing loan formation should halve in FY22 to less than 1% of the loans.
- Provisioning costs should also trend down with several private banks already having created sufficient contingent provisions.
- “Adequate capitalisation at private banks should be supportive of credit growth, ahead from the current sub-6% levels to more than 8% by March 2022.”
- Expects provisioning to decline to about 1.5% of the loans by FY23.
- Privatisation drive to be a positive for PSU stocks.
- If privatisation to non-government entities takes place, PSU stocks can get re-rated.
- PSU banks are on the reform path; privatisation can take time.
- PSU IPOs, asset sales to gather pace in 2021.
- Top picks among PSUs are Container Corp., followed by State Bank of India, Hindustan Petroleum Corp., Bharat Electronics and NTPC.
Broader Capex Cycle
- Expects housing sector upturn to eventually drive private corporate capex as well.
- Household capex cycle to kick in from 2021.
- Banks will be the best way to play the macro positive.
- Preferred banks are ICICI Bank, State Bank of India, HDFC Bank and IndusInd Bank.
- Expects India’s GDP to rise by 13% in FY22 helped by a low base.
- Government expenditure has declined 14% year-on-year in the last three months, making the recovery driven by private sector and more sustainable.
- “Upside surprise could come from several sources, including a pick-up in housing cycle, revival in government infra spends and pent-up demand release on the services side.”
- Growth to be robust given low fiscal stimulus, limited job losses.
- Risks to the growth forecast can come from persistent inflation, which is trending above the Reserve Bank of India’s policy target.