Index Outlook - Special Report - ICICI Securities

Indian markets have been buoyant tracking healthy FII inflows in August 2020 (~US$3.5 bn MTD), pace of economic recovery post the pandemic, progress made by the medical fraternity on development of Covid-19 vaccine. The present market has almost charted a V-shaped recovery since March lows with its move in last two months surprising us positively given our neutral stance on market in the last report. Key economic indicators depict encouraging pace of economic recovery viz. domestic power demand (nearly flat YoY), e-way bill generation (~90% of pre-Covid level), FASTag toll collections at key national highways (~80% of pre-Covid level). However, we are still some distance away from near economic normalcy with auto retail down ~30-35% YoY and decline in diesel consumption by ~20% (YoY & MoM) for first fortnight of August 2020. Currently, we believe the index captures a large part of economic recovery optimism & would recommend being more stock specific, which illustrates quality of earnings, sustainability of growth prospects and possesses fundamental moat. We remain positive on rural economy and resilient sectors like IT, pharma and private banks.

Going forward, we expect Nifty earnings to grow at 19.4% CAGR in FY20-22E. We now value the Nifty at 12,000 i.e. 19.0x P/E (~1x PEG) on FY22E EPS of Rs. 630 with corresponding Sensex target at 40,500. The key monitorable, going forward, will be incremental macro data prints and consumer demand in the upcoming festive season i.e. October-November 2020.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_IndexOutlook_Aug20.pdf

Source : Equity Bulls

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