After a 34% surge from March low, brokerages see limited upside for markets

Global equity markets have seen a good run in the past fortnight, driven by the opening up of the economies and hope of further stimulus packages by global central banks, especially the US Federal Reserve (US Fed), as they fight hard to stem the economic fallout of Covid-19.

Back home, the S&P BSE Sensex and the Nifty 50 have rallied around 8 per cent each in the past fortnight and 33 per cent and 34 per cent, respectively since their March 2020 lows – and even took India's downgrade by Moody's in their stride. The up move has mostly been led by financial sector stocks, besides select news-driven index heavyweights.

Given the sharp recovery since March low and especially in the last fortnight, leading brokerages see a limited headroom for the markets from here on. The flattening of the ‘Covid-19 infection curve’, Covid-19 impact on corporate earnings and the economic policies, they say, hold key to the market trajectory.

Nomura

Equity market valuations are supported by falling yields in India and globally. Given medium-term growth concerns, we think an expansion in the market multiple to 20x from the current 15.9x is unlikely. We assign 16.5x FY22F Nifty earnings per share (EPS) to arrive at our March 2021 Nifty target of 10,200

Jefferies

Rotation to 'value' has become a popular global investing theme. Better-than-expected economic recovery supports that trade in the Indian context as well. Our base case is that the pace of recovery will slow once pent-up demand fades and pre-monsoon activities slow down. If the Covid-19 curve flattens out sooner in key cities, outlook will improve. Our preferred value picks are ICICI Bank, HDFC Ltd, IndusInd Bank, ITC, Ashok Leyland, Larsen & Toubro (L&T), NTPC, HCL Technologies, Mahanagar Gas Limited, UPL, Godrej Properties, and DLF.

UBS

Our Nifty target of 9,900 for March-end 2021— with upside/downside scenarios of 11,500/6,700 — implies unattractive risk-reward after the recent rally. Labour shortages and the execution of long-term reforms remain key variables.

JM Financial

On the basis of our analyst estimates, Nifty 50 is trading at 19.6x next 12 months' earnings per share (EPS) and at 15.2x FY22 EPS. Unless the expected recovery in earnings for the financial year 2021-22 (FY22) comes through, it may be difficult to build in a greater than 10 per cent upside for the markets from here.

CLSA

After hesitating in a narrow range for much of April and May, the Nifty has surged higher recapturing the 10,000 resistance zone (old support) provided by the 2018 lows. The next resistance zone is provided by the 62 per cent retracement level of the January – March decline at the 10,250 area. Above this resistance, the next chart resistance is at the 10,563 - 10,622 area provided by the 2019 lows. The 10,250 to 10,563 - 10,622 resistance zone is likely to cause another bout of hesitation, resulting in a trading range forming between 10,000 and 10,563 - 10,622. A move above 10,563 - 10,622 would open the door for a run at the 200-day moving average (DMA) at the 10,975 area.