Index Outlook JUNE 2021 June 28, 2021 Nifty Sectoral Weights* Weight Weight Change Earnings stage smart upgrade, further upside seen… Sectors (Nov 2020) (Jun 2021) (bps) Indian markets have shown resilience in the recent past and scaled new BFSI 37.8% 37.4% -42 highs amid encouraging corporate earnings in Q4FY21 led by the upswing IT 16.4% 16.3% -9 in key commodities prices and strong underlying demand prospects. GST Oil and Gas 14.1% 12.6% -153 collection at ~| 1.02 lakh crore for May 2021 (eighth consecutive month of FMCG 8.5% 8.2% -34 >| 1 lakh figure) is testimony to robust domestic macroeconomics. Going Capital Goods 2.3% 2.7% 37 forward, with peak of the Covid resurgence behind us, increasing pace of Auto 5.3% 5.3% 1 vaccination domestically and calibrated state specific unlocking under way, Metals and Mining 2.3% 3.5% 117 we expect economic activity to bounce back sharply in 9MFY22E. Our view Power 1.7% 1.6% -8 is further reinforced by the step up capex by the government, which will Telecom 2.1% 1.9% -21 Report Special create multiplier effect on the economy. We expect the present broad-based Pharma 3.5% 3.5% -1 up move in markets to continue, with small cap and midcaps leading the Others 5.9% 7.1% 123 gains. We continue to like IT & pharma space as structural plays in the market. Total 100% 100% Exhibit 1: Nifty and Sensex targets *Index weights are dynamic in nature Revised Sensex & Nifty Target resultant to market price movement & Earnings Estimates FY19 FY20 FY21 FY22E FY23E susceptible to change going forward Nifty EPS (₹/share) 470 440 515 675 795 Growth (%) 3.2% -6.2% 17.1% 30.9% 17.9% Earnings CAGR over FY21-23E 24.2% Target Multiple 22.0x Highlights Nifty Target (at 22x PE FY23E EPS) 17,500 Corresponding Sensex Target 58,300 Domestic markets show resilience and Potential Upside (@Nifty 15,850) 10% scale new highs amid encouraging Source: ICICI Direct Research corporate earnings in Q4FY21 and strong domestic macroeconomics Post Q4FY21, our earnings estimates have been upgraded to the tune of ~7.5% with Nifty EPS now expected to grow at a CAGR of 24.2% in FY21- GST collection, a key indicator, 23E to | 795 in FY23E. Assigning the same PE multiple of ~22x to FY23E depicts robust prospects; > | 1 lakh Retail Equity Research Equity Retail earnings, our resultant Nifty target is at 17,500 with equivalent Sensex target figure for eighth consequent month – at 58,300; offering a potential upside of ~10%. We note that traditional PE with April 2021 reading at a high of ~| multiple matrix at the index holds less relevance due to constant change in 1.4 lakh crore index constituents in favour new economy stocks as evidenced by recent inclusion of Tata Consumer Products against the exclusion of Gail. FPIs have turned net buyers in June 2021 (MTD inflow at US$2.1 billion) vs. Sectoral Earnings selling activity observed in April 2021 (outflow of US$1.3 billion), May 2021 Earnings in the oil & gas space were a saviour and lifted overall earnings at Securities ICICI (outflow of US$390 million) the index level for FY21. Going forward, double digit earnings growth over FY21-23E will be led by automobile sector (base effect), capital goods space We expect broad based participation and index heavy BFSI space, which also includes the insurance sector. to continue with midcap & small caps Exhibit 2: Sectoral EPS (|/share) leading gains. We continue to like IT & Sectoral EPS (₹) YoY Growth (%) CAGR (%) pharma space as structural plays Sectors FY20 FY21 FY22E FY23E FY21 FY22E FY23E FY21-23E We expect Nifty earnings to grow at a BFSI 137 176 224 267 29% 27% 19% 23.1% CAGR of 24.2% in FY21-23E IT 78 84 101 118 7% 20% 17% 18.5% Oil and Gas 69 103 103 123 51% 0% 19% 9.2% We value Nifty at 17,500 i.e. 22x P/E FMCG 34 34 39 44 0% 16% 12% 14.1% (unchanged) on FY23E EPS of | 795. Capital Goods 18 14 21 26 -26% 55% 21% 37.3% Corresponding target level for Sensex Auto 19 5 32 47 -75% 573% 47% 214.4% is at 58,300 Metals and Mining 32 38 74 69 21% 94% -7% 34.4% Power 24 28 29 32 18% 4% 9% 6.6% Telecom -4 -1 6 14 65% -577% 132% LP Research Analyst Pharma 14 16 16 20 18% 3% 23% 12.8% Pankaj Pandey Others 20 23 31 32 13% 36% 5% 19.2% [email protected] Total 440 515 675 795 17% 31% 18% 24.2% Source: ICICI Direct Research Index Outlook | June 2021 ICICI Direct Research RATING RATIONALE ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock Buy: >15% Hold: -5% to 15%; Reduce: -15% to -5%; Sell: <-15% Pankaj Pandey Head – Research [email protected] ICICI Direct Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093 [email protected] ICICI Securities | Retail Research 2 Index Outlook | June 2021 ICICI Direct Research ANALYST CERTIFICATION I/We, Pankaj Pandey, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. 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