Mr Mitul Shah, Head Of Research at Reliance Securities
Domestic equities closed higher tracking global cues. The market opened gap up and continued its positive momentum. The Nifty closed 1.1% higher, while the broader market was also up in similar range. Nifty MidCap 100 was up 0.8% while SmallCap index was up 1.26%. All the sectors were in green ahead of IT results. US equities finished lower across the board. The benchmark 10-year yield rose to 1.77%. A disappointing 199,000 jobs came back during December, slowing compared to the last month. Other metrics, however, were more upbeat, as the unemployment rate improved to a fresh pandemic-era low of 3.9%. US equities were already under pressure as the market reassessed the next likely moves by the Federal Reserve. The economy has reached maximum employment, the jobs report could provide additional feed for the Fed to double down on its hawkishness. Unemployment benefits rose but remained at historically low levels, suggesting that the job market remains strong. US jobless claims rose by 7,000 to 207,000. The four-week average of claims rose by nearly 4,800 to just below 205,000.
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 stands at 20,000, valuing it 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. 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.