Get Ready For Nifty 15,800 By Dec 2021. Check out the top 10 stock picks of Jefferies

Jefferies, the distinguished foreign brokerage, has issued a 'India Strategy 2021' note in which it has opined that the Nifty is likely to surge to 15,800 by the end of the year.

It is pointed out that a supportive global backdrop has enabled 2021 to start with a bullish view on Nifty.

The cyclical recovery in India is likely to continue due to the growing evidence that the housing cycle has bottomed out and is now set for a multi-year upswing.

Jefferies is overweight banks, property, materials & industrial.

Their Top 10 picks are HDFC, ICICI, Godrej Properties, ACC, HUL, Concor, Maruti, L&T, Tata Steel and Dixon.



It is pointed out that a housing cycle recovery is taking hold. The housing affordability index is at the lowest (hence the best) level in the past two decades, and the numbers coincide with the bottom of the previous property cycle in 2003/04.

The buyer sentiment is also improving.

The unsold inventory is down 20% from the peak and it is projected that as sales accelerate, inventory would start hitting price-gaining levels by end-2021.

It is opined that a potential upturn in housing can positively impact the broader GDP growth by 1-1.5ppts every year for the next five years - eventually driving the long-awaited capex cycle.

It is also stated that the macros are favourable. The economy recovered smartly from the COVID lows despite a small, sub-2% fiscal support from the government. The recovery is private-driven and hence more sustainable. The COVID situation appears well under control.

A strong FY22 with an expected GDP growth of 13% is expected, helped by the low base
and cyclical upswing driven by the housing upcycle. INR to be a stable currency with risk on the upside. The key macro risk is inflation, which is trending a above the RBI's policy target of 2-6% and a sustained high inflation could see the a central bank reducing its liquidity support.

The EPS growth over FY21-23 is expected to be strong at 60%, Jeffries stated. They explained that the equities probably factor in 35%+ earnings growth for FY22 but consensus/Jefferies also expect another 20% EPS growth for FY23. The corporate profit to GDP ratio had slumped from a peak of 3.8% in FYI2 to 1.7% in FY20. Weak profitability for financials was a key reason. With the expected peaking of the provisioning cycle, Jeffries expects the ratio to improve from 2.0% in FY21 to 1.5% by FY23.

It is also stated that the earnings growth confidence is bolstered by the fact that consensus
has actually upgraded earnings by 4-5% for FY21-23 during 4QCY20.

Nifty Target: 15,800

Jeffries has projected a Nifty target of 15,800 by December 2021. This offers a total return of 14%.

It is stated that though the Nifty currently trades at 22.3x 12M forward earnings - more than 1sd above the past 10-year range, the bond yield - earnings yield metric shows that the valuation is close to averages.

It is also stated that favourable global backdrop should continue to drive foreign inflows
and the overall domestic retail participation (including direct participation) will be supportive.

The Nifty target of 15,800 implies a 20x 12M forward PE - 10% derating from the current level.

Jeffries has maintained a pro-cyclical bias in its model portfolio with a slight value/mid cap bias and neutral PSUs. OWT - Financials, Property, industrials, materials. Neutral - Pharma, energy, discretionary.

It is underweight Staples, Utilities, IT services and telecom.