Nifty valuation worries overestimated? Experts say remain invested as bulls continue to run the show

By: |
Updated: Feb 08, 2021 3:22 PM

Since March 2020, Nifty 50 has more than doubled in value, going from 7,511 points in March to 15,133 on Monday morning.

nifty, SensexKotak Securities has increased its year-end 2021 target price for Sensex and Nifty after the Union Budget, and that might not be the end of their upward revision. (Image: REUTERS)

Bulls have been running the show on Dalal Street for months now. The multi-month rally that has seen Sensex and Nifty scale to fresh all-time highs repeatedly has sown some seeds of worry now. Nifty is now at a PE of 40x — which leads many to conclude that markets are stretched now. However, leading Dalal Street voices believe otherwise post the budget. “Since the quarter of June 2020 was a complete washout in terms of earnings, merely looking at valuations from a Price/Earnings perspective would not be prudent,” Ashish Shanker, Deputy MD, Motilal Oswal Private Wealth Management.

Stay invested

Since March 2020, Nifty 50 has more than doubled in value, going from 7,511 points in March to 15,133 on Monday morning. Ashish Shanker of Motilal Oswal adds that at this juncture, it is imperative for investors to consider interest rates and cost of capital, that is at decadal lows. “If investors are at or above their strategic equity allocation levels, they should continue to remain invested, he said.

“The Indian economy may be on the verge of a multi-year investment cycle similar to the 2003-11 cycle given positive drivers in both household and private sector segments. We could also be at the cusp of a big revival in the housing cycle,” Rusmik Oza, Executive Vice President, Head of Fundamental Research at Kotak Securities told Financial Express Online. Nifty currently trades at 23x forward PE multiple while it traded at 6-8x before the start of 2003-08 bull market which was led by strong GDP and earnings growth. “One can remain invested for the time being by keeping a watch on global interest rates and bond yields as they are the biggest risk factor for global markets this year,” he added.

More target upgrades ahead?

Kotak Securities has increased its year-end 2021 target price for Sensex and Nifty after the Union Budget, and that might not be the end of its upward revision. “Post budget, looking at Q3FY21 numbers that were coming and the very low base of first half of FY20 we felt there could be more earnings upgrades possible in the next few months,” Rusmik Oza said. The revised target for Nifty is based on CY21 end Nifty-50 EPS estimates of Rs 770 and a slightly higher multiple of 19.5x. 

What’s fueling the growth

The banking space, often seen as a proxy for economic growth, has seen a clean up during the pandemic. “The Financial system has done a lot of clean-up of its books, and most of the top Banks are entering the current cycle with extremely high provision coverage ratios,” Shanker said. “Key reforms such as Corporate tax cuts, and the Government’s thrust to augmenting manufacturing through PLI in select sectors are likely to aid in earnings growth going forward. Hence, when adjusted for revised earnings growth estimates for FY21, the equity markets look to be in fair value zone,” he added.

Sectoral watch

Among sectors that Rusmik Oza is watching include banks, capital goods, construction, engineering, oil & gas, cement, real estate, and metals. He adds that these sectors can make money for the past underperformance and potential recovery. Shanker is also keenly watching the financials and cement, along with auto, consumers, pharma, IT and infrastructure.

(The recommendations in this story are by the respective analysts, research and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Analyst Corner: Maintain ‘buy’ on Tata Motors; JLR pivots to EVs
2Analyst Corner: Maintain ‘buy’ on BPCL with target price of ₹550
3Indian Oil Rating: Buy – Retail hikes allay concerns for company