More consolidation possible in FY22; Nifty may hit 16,300 by December 2021: Vikas Jain of Reliance Securities

Market Outlook

Nifty50 is trading 12 percent higher than the 10-year average on one-year forward PE, so we do not expect a similar performance in FY22, Vikas Jain, Senior Research Analyst, Reliance Securities said in an interview with Moneycontrol’s Kshitij Anand.

edited excerpts:

Q) Although it was a short week the volatility remained high with Sensex and Nifty touching crucial resistance levels and then retracing back some gains. What led to the price action?

A) Nifty50 opened higher on the back of positive global cues at the start of the week. Also, the record GST collections of Rs 1.24 lakh crore for March 2021 are clear indications of rapid economic recovery post-pandemic which lead to a strong closing.

Nifty50 found support at 14,250, near its 25.2% retracement of the previous move (10,800-15,431) and continued to ride the positive momentum to gain 2.5 percent.

Q) What is your view on the small & midcaps?

A) The small and midcap indices are outperforming the broader markets for the last few months.

On a full-year basis for FY21, the midcap index was up by 102%, the smallcap was up by 126% compared to Nifty’s 71%.

The Nifty Midcap 100 index is holding the medium-term average since the breakout it witnessed in November 2020. We remain positive on the midcap space till it does not breach 23,100 levels which is 5 percent away from the current close of 24,100 levels.

Q) IT and Basic Material are up over 5% each in March. What led to the price action in these sectors? Do you think this outperformance could continue in April as well?

A) The IT sector continues to remain a favourite among the investors as digital services are likely to clock 15-20% CAGR led by cloud adoption, resilient business model, and consistent cash return policy in terms of buyback and dividends. The outperformance will continue and the focus will be on the quarterly results starting from this week.

Basic materials remained in momentum as demand remained quite upbeat during March 2021 led by sustained pick up in construction activities and improved traction in real estate markets.

Despite that, prices remained upbeat in the month. All-India average price recovered sharply in March 2021 by 4.7% mainly led by substantial price recovery in the Eastern and Southern regions.

Further, Western prices recovered by 4.7% MoM and Central region prices by 1.6% MoM.

Q) 10-years data suggest that bulls remained in control at least in 7 out of the last 10 years in April. How is April likely to pan out for investors?

A) The April series has started on a strong note and we remain positive as we have witnessed the corrective action in March from the highs and the bounce from the support of 14,300 levels remains constructive to test the recent highs.

Among sectors, we remain positive on autos, banks, and pharma at current levels as the risk-to-reward ratio is higher after a correction of 10 percent from their 52 week high.

On the higher side crossover of 34,800 in Bank Nifty would give a breakout for a higher target of 36,000 levels.

Q) As we step into FY22 what would you advise investors? Sensex and Nifty rose by about 70% in FY21 and a similar performance is unlikely in FY22.

A) The stellar returns of 71% in FY21 were on a lower base of valuations, steep correction in the last quarter of FY20 on account of global sell-off with respect to the COVID crisis.

From the current levels, we believe that the COVID vaccination success and economic recovery growth will be important to watch.

The Nifty50 is trading 12 percent higher than the 10-year average on one-year forward PE, so we do not expect a similar performance in FY22.

We could expect some consolidation at current levels and as earnings increase and rollover to the next year. We could see Nifty50 test 16,300 levels by December 2021.

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