After a strong 118% rally in 73 weeks, upside from current levels may be limited for the benchmark Nifty 50 index. Satish Menon, Executive Director at Geojit Financial Services, in an interview with Kshitij Bhargava of Financial Express Online says he expects Nifty to be in the range of 16000-16500 by March 2022. He further added that valuations, although down from their all-time highs are still trading well above their 5-year averages. On the correction in the midcap and smallcap space, Satish Menon is not too worried but sees it as a much-needed correction after the stellar run since April 2020. Here are the edited excerpts.
What triggers do you see for domestic markets this fiscal year? Where do you believe Nifty will be by March 2022?
The key trigger will be the unlocking of the global and domestic economies. We can anticipate moving faster towards normalization by the end of March 2022. Because of this, we can expect interest yields to improve, which is an essential factor to bring growth in real business. Regarding Nifty 50, we had a target of 16,165 for December 2021 end, which has been reached and is now trading above our market target. Our view is that the markets would be in the range of 16000 to 16500 in March 2022.
Sensex, Nifty are near lifetime highs what do you make of valuations right now?
Valuations are at a historically high band range. They have corrected by about 5 percent from the all-time high and are currently trading about 20 percent above the 5-year averages. It was supported by high earnings growth forecast, the glut of liquidity, and high fiscal and monetary support. We can expect this high trend to normalise over the medium term.
Small caps and midcaps had a great run but recently have started correcting, is it a sign of worry?
It is not a big worry but yes it will be a concern in the short-term. The market needed correction in mid and small caps to bring parity in the market segments after the super rally from 2020 low. During this quarter, we have been recommending partial profit booking. Investors have to become stock selective and increase the mix of large caps in your portfolio. This is in anticipation of long-term demand and supply law, given elevated market trends and valuations.
Infrastructure is expected to be a big theme in the coming quarters, do you believe that? Are there any particular stocks you are looking at?
As the economy moves towards normalcy, core industries like Infra, construction, capital goods, auto and banking will be the main beneficiaries. At the same time, broad market is in a consolidation mode, so we need to be stock specific during the period. We can expect the infra industry to outperform the broad market in the future. Few stocks on which we have positive recommendations on long-term basis are L&T, KNR Construction and ICICI Bank.
What themes do you believe are very attractive at this juncture that investors should be tracking?
New economy stocks will be the most attractive for the investors due to the high growth rate, upcoming business model relating to internet, marquee investors and high valuations demanded by such companies. These are good businesses to invest in for the long term, but in the short term, one should be ready for increased volatility based on valuations. Also, sectors like Chemical, Sugar, Electrical Manufacturing and Pharma will be in high demand due to the government’s policy reforms and high global resource sourcing demand from India.