FY20 is the worst financial year since FY09 in terms of year on
year Nifty returns. Nifty lost ~25% of its value during the year. Most of these
losses have come in past one quarter (Q4FY20), during which Nifty lost close to
30% of its value.
In my view, considering the present circumstances and
indications visible presently, the earnings and economic growth outlook remains
heavily clouded for next 2-3 quarters. Thus, there are chances that the
calendar year 2020 may turn out be a disappointing year in terms of equity
returns.
Working on various scenarios for the Nifty levels one year from
now, I concluded that Nifty may return 5-8% in next 12months considering flat
earnings growth in FY21 and 10-15% growth in FY22; and valuations close to long
term average of 17%. I appreciate that 10-15% yoy earnings growth in FY22
appears quite challenging in the present conditions. However, considering the
lower base (no growth for 3years) and economic recovery due to easy monetary
policy and lower effective tax rates, I am willing to work with these
assumptions.
For March 2021, I assume the worst case Nifty level of ~6900, a
most likely level of 9100 and a best case scenario of 11500. I am not ruling
out an interim fall in Nifty to sub 6000 level.
This implies that I shall be looking at significantly increasing
my equity exposure should Nifty fall below 7000 in next few months.
I fully realize that the economic disruption caused by the
COVID-19 pandemic shall have deeper and wider impact that may last upto 2years.
However, the $5trn new liquidity created worldwide shall support the financial
assets, as the commodities prices continue to deflate. In India the government
and RBI have started the process to kill the yields. The return on bonds and
cash shall be meager, after a spurt in bond prices to adjust for the lower
yields. The relative attractiveness of equities and real estate shall
definitely increase in 6-9 months period. The FPI selling pressure shall cease
in due course as redemption pressure on them eases and fresh liquidity is made
available to unfreeze the markets.
AT the present levels of market, I am not panicked - either into
buying or selling.
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