NSE Nifty 50 index is likely to surge higher in 2022, hitting a fresh all-time high of 20,800, said analysts at ICICI Direct. The brokerage firm’s 2022 Nifty target implies an upside of 23% from today’s low and a 12% rise from the current all-time high of 18,604. Analysts at ICICI Direct said that the Nifty 50 index has managed to test its Mean+3*sigma levels for the first time since 2008. “We believe it is a new trend in the making where Mean+2*sigma levels (currently near 15700) should act as a support while the Nifty should achieve the target of its mean+3*sigma levels in coming months,” they added.
Keeping markets buoyant
Analysts highlighted that during the last two rate hike cycles equities have been major performers among all asset classes. “From an Indian perspective, the movement seen during 2003-07 was one of the strongest seen till date. With global central banks preparing for rate hikes due to the ongoing inflationary pressure, a repeat of 2003-07 cannot be ruled out,” they added. A similar trend was analysed when tapering started in 2013. ICICI Direct said that in 2013 domestic markets witnessed a setback initially as FIIs withdrew but over the next few years markets remained buoyant.
There is no other alternative
After a stellar run since 2008, bonds might be running out of favour now. “With looming high inflation and yields turning negative, not much scope is left for further returns in bonds,” said ICICI Direct. They added that commodities have seen a sharp rebound but have failed to generate high returns. China is anticipated to keep prices in check.
On the other hand, stocks continued to be the best performer among asset classes. “Both India and the US provided above 250% returns in the last 10 years. We believe lack of alternatives for returns would continue to favour equities and they will remain in focus in coming years,” the report said.
The increased retail participation has led to a high market share being owned by domestic investors. In 2021 retail Demat accounts have jumped by 36%. “Fund flows from domestic investors have witnessed a sharp rise compared to FIIs. Direct retail, as well as mutual funds, have shown significant growth. The total market share of domestic investors (DII+HNI+Retail) has moved to 59% from 55% since 2015,” ICICI Direct added. This increased participation from domestic investors is seen as a reason behind the resilience of domestic markets despite FII outflows. The recent 11% correct in Nifty has seen FIIs pull out nearly Rs 80,000 crore. In February and March, 2020 similar outflows were seen and the market had then tanked 40%
Broader markets to outperform
Analysts said that the price ratio of the midcap index, as compared to Nifty 50 is in a recovery stage suggesting outperformance. “According to the previous observation, there was ~30% correction in 2008, 2013 and 2018, followed by the outperformance of midcap index by 50-70% in 2007 and 2017. Hence, we feel that a similar outperformance trend has commenced from March 2020 where we saw the ratio go up by 10% till December 2021. Hence, there is a lot to recover still,” they added.