Domestic brokerage house Prabhudas Lilladher has cut the Nifty target for March 2022 to 15,909 from 16,020 earlier. It further noted that it has risen Nifty earnings estimate by 3.6 percent for FY22, however, it has been cut by 0.7 percent for FY23 after FY21 ended with an 18 percent EPS growth.
It stated that markets are driven by hopes of structural economic recovery and high levels of global liquidity and advised investors that any correction due to the third wave of COVID-19 should be used as an entry point.
"Indian economy is recovering from a jolt of 2nd wave of COVID-19 which led to partial lockdown in several states for nearly a month and a half. Although the impact of 2nd wave was limited as factories and supply chain remained operational, the peak case addition of 4.2x daily and spread to small towns and rural India has dampened the sentiment," the brokerage stated in its report.
June month has seen a gradual easing of restrictions and pick-up in demand, however, there remains uncertainty regarding the sustenance of pent-up demand in the economy, it added.
Prabhudas Lilladher values Nifty at a five percent premium to last 10-year average PE of 20.1x on FY23 EPS of Rs 754 and hence arrived at March 2022 target of 15,909 in its base case scenario.
Meanwhile, in the bull case scenario, it sees Nifty hitting 18,850 by March 2022, however, it is also less than its previous target of 18,977.
Going ahead, it said that it can't rule out a strong third wave of COVID in the September/ October festival season which will have a telling impact on sentiments and can lead to a considerable cut in FY22 EPS.
It further believes that a spike in global commodity prices, the biggest ever infra capex plan of the US Govt and its focus on inclusive benefits amidst covid impact will result in higher inflation.
“We note that central banks are already indicating increasing interest rates in 2022, one year earlier than estimates, which has the potential to reverse global money flows and spook the markets,” it added.
Also, FII inflows in the last three months have been just Rs 5,200 crore versus Rs 52,300 crore in the first three months of the current calendar year which indicates a cautiousness in investors.
Among long-term trends, it likes Infra, Housing, IT Services, Pharma, Chemicals, BFSI, Agriculture, and E-commerce. Electric Vehicles, OTT, Green energy, Make in India, E-commerce, and Financialisation will be key market drivers in the coming decade, Prabhudas Lilladher added.