“A supportive global backdrop helps us start 2021 with a bullish view on Nifty ,” said Mahesh Nandurkar, Managing Director and Head of Research at Jefferies India in a note.
The brokerage firm has retained its positive stance on cyclical recovery in India, “thanks to growing evidence that the housing cycle has bottomed out and is now set for a multi-year upswing”.
The brokerage firm is of the view that the Covid-19 situation in the country is well under control and since the recovery is driven by the private-sector, it is, in turn, more sustainable.
Jefferies expects the Indian economy to grow at a robust pace of 13 per cent in 2021-22 helped largely by a low base of 2020-21 and as the roll-out of Covid-19 vaccine helps economic activity to normalize through the year.
The foreign brokerage firm is also betting on 35 per cent growth in earnings per share of Nifty 50 companies in the next two financial years. Earnings growth confidence is bolstered by the fact that analysts have actually upgraded earnings by 4-5 per cent for the next two financial years in December quarter.
While the brokerage firm acknowledges the rich valuation of the domestic stock market—one-year forward price-to-earnings ratio is sharply above long-term range, it believes that based on earnings yields-to-bond yields the market is still close to the long-term average.
“Favourable global backdrop should continue to drive foreign inflows and we expect overall domestic retail participation (including direct participation) will be supportive,” Nandurkar said.
On themes that will benefit the most in 2021, Jefferies is disproportionately bullish on the housing sector as it believes the sector is in for a multi-year cycle of growth following a decade of non-performance.
The affordability has been attractive for some time and the only missing part has been buyer sentiment, which is now falling in place, the brokerage firm said.
Besides the residential real estate sector, the brokerage if also bullish on financial services firms, industrial goods manufacturers and capital goods producers.
The brokerage has a neutral stance on the pharmaceutical and consumer discretionary sector, while it is now underweight on information technology, telecom and consumer staples sectors.