Axis Capital warns equities headed to bubble zone in 2021

MUMBAI: Brokerage firm Axis Capital has a warning for domestic equity investors: benign liquidity conditions and earnings upgrades may drive equities towards a bubble territory in 2021 as FOMO (fear of missing put) drives investments rather than fundamentals.

The brokerage firm expects Nifty50 to soar towards 16,800 points by the end of the year, implying a return of 18 per cent, considerably higher than the 15 per cent returns of 2020.

“While corrections are inevitable, our view of Nifty scaling new highs of 16000+ is driven by benign liquidity, improving macro and improving earnings cycle,” the brokerage firm said in a note.


Nifty50 has risen close to 90 per cent after hitting its multi-year lows in March 2020 as abundant domestic and global liquidity, low-interest rates, and signs of V-shaped economic recovery drove investors towards equities around the world.

While the earlier recovery post-March in the domestic stock market was driven by global factors, in the second half of 2020 returns have been driven by expectations of strong corporate earnings and the rollout of COVID-19 vaccines across the country in 2021.

The brokerage firm expects earnings to see further upgrades but still be dominated by top three players in each industry as “winner takes all” theme continues from 2019 and 2020.

“Industry leadership remains an advantage that will only get magnified till the economic recovery gets broad-based and markets will continue to assign higher multiples to exceptional businesses and managements,” the brokerage house said.

Axis Capital expects India’s GDP to grow at a supercharged pace of 12.5 per cent in 2021-22. Recovery will remain consumption-driven with some support from exports, the brokerage said.

However, it warned that risk to the macro-economic and liquidity outlook comes from inflation “but this is a manageable risk for equity since RBI can protect rupee given that our forex reserves are more than $580 billion.”

Axis Capital has also highlighted nine stocks that investors can look at to play the Nifty 50’s journey to 16,000.