Djokovic is the pre-tournament favourite after winning four of his last six events – including titles at Wimbledon and the US Open.
However, the Serbian suffered a blip in his most recent outing, a Paris Masters final defeat to Karen Khachanov.
But Federer has not won the ATP Finals since 2011 and he cannot foresee that drought coming to an end this time around.
The 20-time Grand Slam winner instead believes Djokovic can win the final competition of the season if he continues his recent form.
“Dominating the field is not something that comes very easy,” Federer said.
“I think only Novak can say ‘if I play as well as I have the last few months, maybe I can also win the World Tour Finals.
“The best of three set matches indoors, the margins are slimmer. It can slip fast.
“I have played well. Since 2011 I have not won the World Tour Finals but I have done well.
“It does not feel like that long ago, there were always just a couple of other guys who were a little bit better during that week.
“I think it just didn’t happen because of my opponents, maybe a little bit.
“Maybe I wasn’t out-right dominating the season as well.”
Federer also played down his chances of winning the ATP Finals.
However, he insists he does not want to finish his season off with three defeats.
“If I would have known last year that this would have been the season then I would have taken it,” Federer said.
“I am very happy with the season so far. We have one more [tournament] left.
“I hope I don’t go on vacation with three losses, put it that way.”
Federer gets his campaign underway against Kei Nishikori on Sunday evening (8pm GMT).