Broader market to participate in rally; Nifty valued at 13,350: ICICI Direct

Indian markets have witnessed an impressive run recently, with Sensex and Nifty trading near all-time high levels on the back of improving economic activities domestically, robust foreign capital inflows and incrementally positive news flow on COVID vaccine development.

The foreign institutional investors (FII) and foreign portfolio investors (FPI) have pumped in around $4 billion in the month of November so far.

Better-than-expected September quarter corporate earnings also fuelled optimism in the markets. Maximum companies benefitted from low raw material cost and realized operating leverage benefits with management commentary positive on demand prospects and retaining some part of operating leverage gains in the post-COVID world.

Meanwhile, on the macroeconomic front, GST collection for October 2020 was in excess of Rs 1 lakh core, up 10 percent when compared to the previous month, while present E-way bill generation, fuel consumption and power demand surpassed pre-Covid levels.

Given the sharp up move in the present month, ICICI Direct is of the view that broader market participation will follow with small-cap, midcap space to relatively outperform their large-cap counterpart while stock-specific action is expected to continue.

Post Q2FY21, the research house marginally revised its FY21E-22E estimates - FY21E upgraded by 5 percent while FY22E downgraded by 2.5 percent. Going forward, it expects Nifty earnings to grow at 17.5% CAGR in FY20-23E. From the low base of FY21E, Nifty earnings CAGR is at 22.7% in FY21E-23E.

ICICI Direct now values Nifty at 13,350 i.e. 20x P/E on FY22E23E average EPS of Rs 668 with corresponding Sensex target at 45,500.

“Going forward, post blip over FY19-21E, earnings recovery in FY20-23E period will be led by automobile sector, oil & gas space and index heavy BFSI space that now also includes the insurance sector,” ICICI Direct said.

The brokerage is positive on the rural economy (farm equipment, farm inputs, selective FMCG, consumer durable names) and resilient sectors like IT, pharma, private banks.