The Nifty-50 index touched a milestone of 20,000 this month. The journey from 19,000 to 20,000 was completed in just 52 trading sessions as against the 425 sessions it took the Nifty during its journey from 18,000 to 19,000.
Even though equity benchmark Nifty has soared to new peaks, it is still trading at a discount to its long-term valuation multiples, and the upside from here will be a function of stability in global and local macros and continued earnings delivery, said domestic brokerage house Motilal Oswal.
In a report, it noted that Nifty is trading at a 12-month forward P/E (price to earnings) of 18.8x, a 7 percent discount to its own long-period average (LPA). It also trades at a 12-month forward P/B (price to book value) of 3x, a 6 percent premium to its long-period average, added MOSL.
“Notably, Nifty EPS grew ~19 percent over FY20-23 to ₹807 versus market returns of ~15 percent over Jan’20-Sept’23. Thus, valuations are far more reasonable today than they were in Oct’21 highs,” it said.
MOSL further pointed out that although the Nifty-50 is at a new high and is creating a lot of buzz, on a two-year basis, it is just up around 7 percent from the October 2021 high (18,000 level).
As per the brokerage, Nifty-50’s journey to the new high was led by a favourable blend of healthy macro and micro factors, moderating inflation and cooling commodity prices, global interest rates near their peak, and six consecutive months of FII inflows with strong retail participation.
It also informed that during the last five General Elections (1999-2019), the Nifty-50 rallied 10 to 32 percent six months prior to the announcement of election results.
MOSL further observed that some of the key macro drivers are 1) strong GDP growth of 7.2 percent in FY23 and expectations of 6 percent growth in FY24, 2) moderating inflation (headline CPI inflation at 6.8 percent in Aug’23), 3) narrowing CAD (to 0.2 percent of GDP in 4QFY23), 4) stable exchange rates, and 5) global interest rates nearing its peak.
Moreover, solid growth in corporate earnings (Nifty earnings up 10 percent in FY23 on a high base of 38 percent in FY22) and expectations of high-teens earnings CAGR over FY23-25E have kept the sentiment buoyant, it added.
Over FY20-23, the MOSL Universe posted an earnings CAGR of 26 percent to reach ₹8.3 lakh crore, whereas the Nifty-50 reported an earnings CAGR of 22 percent to reach ₹6.2 lakh crore. The earnings momentum is likely to remain strong going ahead with MOFSL/Nifty-50 earnings projected to clock 21 percent/19 percent CAGRs over FY23-25E, forecasted the brokerage.
The Nifty-50 has seen a CAGR of 11 percent in 1-year, 12 percent in 5-year and 13 percent in 10-year periods.
NTPC, Coal India, Cipla, L&T and TATA steel were top performers, while Britannia, Eicher, HUL, HDFC Bank and Nestle were the key laggards during Nifty's 19k to 20k journey (during Jun’23- Sept’23), noted the brokerage.
Celebration is broad-based this time!
Though the Nifty-50 is at an all-time high, mid and small-caps have outperformed by a big margin, noted MOSL. This year till date, the Nifty-50 is up 11 percent, whereas the Nifty Midcap 100 and the Nifty Smallcap 100 are up 28 percent and 29 percent, respectively.
The largecaps remained clear outperformers during Nifty’s journey from 18,000 to 19,000. However, the mid and smallcaps hit new highs when Nifty moved up from 19,000 to 20,000, it stated.
“As the rate-hike cycle seems over and with the positive retail sentiment, the mid and small caps remain in favour. This was evident in the recent broad-based market rally, when both mid- and small-cap indices rose 13 percent and 16 percent, respectively, outperforming the Nifty-50 by a wide margin of 780 bps and 1,150 bps, respectively, during Jul’23 to Sep’23 (when Nifty moved from 19k to 20k),” Motilal Oswal added.
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