With coronavirus pandemic leading to a market selloff in 2020, the headroom for recovery seems very narrow. Global brokerage house Nomura is expecting the Nifty50 to scale up to 10,200 levels by March 2021, which represents 6.5 percent upside from the current level.

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“Equity market valuations are supported by falling yields in India and globally. Given medium-term growth concerns, we think an expansion in the market multiple to 20x from the current 15.9x is unlikely. We assign 16.5x FY22F Nifty earnings per share (EPS) to arrive at our March 2021 Nifty target of 10,200,” Nomura said in a recent report.

The brokerage has retained caution on India as growth outlook deteriorates. In the near term, the brokerage expects a further downside risk to the current consensus estimate for Nifty.

While at the global level, equity markets are likely to be supported by strong liquidity, for India the expectations are likely to be relatively muted, the brokerage added.

The lockdown to contain the spread of COVID-19 has brought all economic activity to a standstill and will cast a significant impact on corporate earnings, as per Nomura. According to its estimates, the impact of COVID-19 is likely to be worse than the global financial crisis.

“The COVID-19 pandemic now casts significant uncertainty on near-term earnings. Consensus has cut its Nifty50 earnings estimates for FY21 by 18 percent over the past one-and-a-half months. We estimate further downside risk of 17 percent/9 percent to current consensus estimates for Nifty for FY21/22,” quoted the report.

As per the report, financials will be the key contributors to earnings downgrade.

Investment strategy

Nomura retained an overweight stance on the pharma sector and has turned positive on the information technology sector. However, it remains underweight on infra, cement, consumption, and auto space.

"We are positive on pharmaceutical companies that are 'over-invested' and at the cusp of delivering strong earnings growth. The weaker rupee is also supportive. We turn positive on IT services as valuations are reasonable and there are increasing prospects of stronger growth over the medium term. We maintain Reliance Industries (RIL) as one of our top picks in India," the Nomura report said.

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