The target implies an upside of 11.8 per cent from Monday’s record close of 14,132.90. The brokerage has maintained its positive stance on India’s cyclical recovery aided by growing evidence of the housing market showing signs of a multi-year upswing. Its top picks are HDFC, ICICI Bank, Godrej Properties, ACC, HUL, Concor, Maruti Suzuki, L&T, Tata Steel and Dixon Technologies.
“We enter 2021 with a favourable global backdrop for Indian equities on multiple counts such as global growth, trade, liquidity, rate outlook and forex outlook,” said Jefferies’ Mahesh Nandurkar and Abhinav Sinha in a client note. “We believe that the weaker dollar propelling the global trade and global growth is an ideal environment for EM (emerging market) asset class to perform.”
Foreign Portfolio Investors (FPIs) have pumped a record Rs 1.2 lakh crore into Indian equities in November and December.
“Favourable global backdrop should continue to drive foreign inflows and we expect overall domestic retail participation (including direct participation) will be supportive,”
The brokerage said the Nifty is currently trading at 22.3 times expected earnings, which is more than 1 Standard Deviation above the 10-year range.
“However, our favourite (bond yield-earnings yield) metric shows that the valuation is close to averages,” it said.
Jefferies said India’s economy recovered smartly from the Covid-induced lows despite a ‘small fiscal support’ from the government. It expects gross domestic product (GDP) growth of 13 per cent in FY22 led by a lower base and a housing upcycle.“The recovery is private-driven and hence more sustainable,” Jefferies’ analysts said. “The Covid situation appears well under control.”
The key risk for the Indian economy is inflation, which is trending above the RBI’s policy target of 2-6 per cent, it said.
“A sustained high inflation could see the central bank reducing its liquidity support,” the brokerage said. The expected global cyclical recovery is positive for India, as it supports the housing-driven investment cycle recovery in India, said Jefferies.