Mr Mitul Shah, Head Of Research at Reliance Securities
Domestic equities closed higher after volatile session. The market open lower taking negative global cues, and saw buying momentum after initial profit booking seen in the morning trades. The Nifty closed 0.3% higher, while the broader market underperformed the main indices, Nifty MidCap and SmallCap index gained 0.1% each. Mix action seen on sectoral indices, Nifty Metal was down 1.85% followed by FMCG and Auto, while Nifty IT, Pharma and Realty closed higher ahead of key IT results scheduled tomorrow i.e. Infosys, TCS and Wipro. US equities continued Southward journey as concerns about Federal Reserve monetary policy dominated the market. S&P 500 ended marginally lower by 0.14% despite falling more than 2% in intra-day session. The Nasdaq Composite was 0.05% higher, erasing earlier losses, while Dow Jones fell by 0.45%. The central bank's monetary policy will remain in focus this week, CPI in the spotlight as markets continue to gauge inflationary pressures and the Fed's potential response. The benchmark 10-year yield topped 1.8% to reach its highest level since January 2020.
India appears to be better-placed in terms of handling COVID compared to other countries throughout the pandemic, be it the first wave, second wave, Delta variant or the ongoing Omicron on the basis of which we expect fastest revival from the current slowdown along with similar strong bounce-back in the market. In past we have observed that volatility in market persists till the announcement of first rate hike by Fed, post that it settles down and flow in equities resumes. Equities would continue with the outperformance with double-digit returns. Our year-end 2022 target for Nifty is 20,000 at 22x FY24E earnings. We expect Nifty to enjoy premium valuation for the next 1-2 years on the back of higher earnings CAGR (before reaching stable earnings pace of growth), as India becomes a preferred destination for global manufacturing, going ahead. This trend would continue over the next 4-5 years, supported by China+1 policy and the government's support for various industries. We believe that an all-round calibrated economic recovery is on the cards, though the timing remains highly uncertain. Sectors like IT Services, Engineering, Capital Goods and EV ecology would continue to be in focus in 2022. Automobile is also another promising sector on the back of likely demand revival, better supply and commodity softening. Recently rising Covid cases in India is of concern now and how it would shape up in coming days would key deciding factor for market trend in the month. We would be monitoring situation on recent Covid surge and Omicron issue.