Nifty is up nearly 13 percent in 2020 despite a sluggish economy amid the COVID-19 pandemic. The index has started seeing recovery after facing one of the worst periods of uncertainty.

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In a recent report, Credit Suisse pointed out that Indian equities are no longer cheap, and only a short distance away from being the most expensive they have ever been.

"With 12 month forward P/E multiples 20 percent higher than on 31-Jan, with a broad-based increase in P/E multiples, the recovery is priced in," it quoted in a report.

2020 is likely to be the best year for Nifty since 2017 in terms of returns.

The brokerage believes that going ahead, the upside will come from corporate earnings. 12-month forward earnings have begun to rise sharply as more of 2021 is included in forward earnings, it noted.

"12 months from now the market would be looking at CY22/FY23 earnings: even if Nifty and FY22 and FY23 EPS forecasts do not change, the P/E would have still not reverted to pre-Covid levels," the brokerage quoted.

The September quarter earnings have been better than expected for most Nifty companies. To comfortably expect upside to the Nifty, FY23 earnings estimates need to rise, it stated.

Credit Suisse expects 50-60 percent of the YoY EPS growth expected in FY22 is expected to come from private banks, consumer discretionary and energy.

Model Portfolio

The brokerage sees the performance of industrials improving on the back of performance-linked incentives, and thus have turned 'overweight' on the space.

"As the market adjusts to medium-term growth, the sentiment for industrials is likely to improve boosted by investment potential by PLI schemes. The group’s P/B relative to the market is also at a multi-year low," it stated.

The rise in weight in Industrials is funded from cuts in Energy and IT.

It is also overweight on banks—both private and SBI. Banks, especially private banks, remain the best vehicle to gain exposure to the general economic uplift, it noted.

Another overweight is the metal sector.

"The stance on metals is a tactical one, though. For steel, it is hard to separate the seasonal from the cyclical from the structural. At some point during the year, the cycle is likely to turn, in our view, but there are still significant gains

to be made till then," the brokerage report explained.

Meanwhile, its underweights are on Discretionary (prefer 4 wheelers over 2 wheelers) NBFCs, Healthcare and Cement.

Here's a look at its 30-stock model portfolio:

(Edited by : Ajay Vaishnav)