Heavy industry stocks and sectors can do better due to high discount in valuation compared to the broad market.
Vinod Nair, Head of Research at Geojit Financial Services, expects Nifty to rise up to 16,000 by December 2021 based on improved economic growth from Q2 FY21 onwards.
According to him, mid and small-caps can continue their buoyancy at least in the short to medium term because they are disconnected compared to the performance of largecaps. Edited Excerpts:
Q: India hits market cap of $3 trillion on the BSE. What is your view and will India hit $4 trillion by 2025?
Post-COVID, the rally was triggered by the revamped global economy outlook by the overwhelming fiscal and monetary policy. Some industries also benefited from the pandemic like digitalized and pharma sector. India benefited from the high foreign investments and increased retail participants given the improving future domestic economy and good price bargain. The next course of the Indian market looks good on a long-term basis given reforms undertaken, high fiscal and private capital expenditure expected in the future. It will be challenging to maintain the pace of rally in the medium-term due to rising public debt and inflation.
Q: Reliance Industries, HDFC Bank, HDFC, TCS, SBI, ICICI Bank, Kotak Mahindra Bank, Bajaj Finance and HUL contributed the most to the $3 trillion market cap. Do you think the same set of stocks will participate towards $4 trillion?
These companies have the financial strength, technology and products skills to continue their glory. While the next set of incremented growth will be from new and upcoming sectors which are supported with policy and reforms. Sectors like electronic, manufacturing, chemicals, pharma and startups look entitled. Big players in these respective sectors will benefit the most while the growth in the primary market will help to achieve a higher country market cap.
Q: Do you think with the current momentum, can Sensex hit 55,000 mark and Nifty 17,000 mark before the end of 2021?
Premium valuation and rising inflation is not the best proposition for the equity market to maintain its trend in the medium-term. But the current undertone is positive with a drop in the US dollar and Yield to continue its gains in the short-term. We foresee a level of 15,600 to 16,000 for Nifty50 by December 2021, based on improved economic growth from Q2FY21 onwards.
Q: Will mid and small-caps continue to outperform?
Yes, mid and small caps can continue their buoyancy at least in the short to medium term because they are disconnected compared to the performance of largecaps. Heavy industry stocks and sectors can do better due to high discount in valuation compared to the broad market.
Q: With the vaccination drive, do you think the third wave will not have a major impact on the market?
Yes, it is highly possible, if we achieve a high coverage ratio like 40 to 50 percent of the population as seen from the examples of developed countries like the US and UK, new cases have dropped substantially. The Indian government has the plan of the world’s largest vaccination drive which will help to reduce further risk in spreading.
Q: Which stocks/sectors are underleveraged and may lead the next round of rally?
The sectors which are low in debt/equity ratio are FMCG, IT and Pharma while sectors with high debt are Energy, Auto and Metals.
First published in moneycontrol.com.