The NSE benchmark has demonstrated consolidation with a 4.4 per cent up move over the past two months despite significant market volatility during the Lok Sabha elections 2024. ‘’Nifty 50 is trading at 15-year average PE with 14.9 per cent EPS CAGR over FY24-26. Our 12- month base case Nifty 50 target is 25,816 (25,810 earlier),” said Prabhudas Lilladher in its report on June 14.
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The BSE small cap and mid-cap indices rose 57/61 per cent in the last 12 months, which is >2x the movement in Sensex/ Nifty and BSE 100. The broader indices’ gain in the last two months shows investors’ confidence in the economy and strong market breadth, according to Prabhudas.
Nifty 50 Outlook: Currently, Nifty has near-term support around the 23,200 zone, and a decisive close above 23,500 could trigger a further rise to the next target of 23,800. The brokerage believes that a progressive budget, normal monsoons, and strong inflows will further re-rate markets in 12 months.
–Bull Case: Over bullish momentum, Prabhudas values Nifty 50 at five per cent premium to 15-year average PE 20.2x (20x earlier). It arrived at a bull case target of 27,102, compared to 27,100 set earlier.
–Bear Case: Over a bearish stance, Nifty 50 may trade at 10 per cent discount (10 per cent earlier) with a target of 23,235, compared to 23,229 set earlier.
Key expectations from Modi 3.0: Infra push, policy reforms
Prabhudas Lilladher anticipates that the NDA government will sustain its focus on capital expenditure-driven growth. The brokerage expects the NDA government to increase focus on farmers, rural, urban poor and middle class to arrest the impact of new social engineering cum freebies led reversal in certain states in the Lok Sabha elections 2024.
The brokerage also expects steadfast emphasis on infrastructure development spanning roads, ports, metros, airports, railways, power, and more. Sectors such as green energy, hydrogen, electric vehicles, data centers, defence, and production linked incentives (PLI) are poised to attract huge investments.
‘’We expect increased focus on providing higher prices, subsidies for crops and crop diversification. We also expect more incentives to rural India/ bottom end under existing flagship schemes like Ujwalla, PM Awas, Nal se Jal, Ayushman Bharat among others,” said the brokerage.
Hopes for normal monsoons after La Nina indications and a shift towards defensive stocks in the current volatile environment have led to a resurgence in FMCG and consumer durables. Monsoons may also cushion the impact of food inflation in the coming months, according to the brokerage.
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Prabhudas ‘overweight’ on THESE sectors
Among sectors, Prabhudas remains bullish on automobiles, banks, asset management companies, capital goods, defence, hospitals, pharma, cement, aviation, and discretionary consumption. The brokerage increased weights behind capital goods, telecom and cement sectors. It is underweight on IT services and oil & gas
Banks: The brokerage has turned overweight on banks by 50 bps on strong credit growth and asset quality. We have slightly increased weight behind HDFC Bank as incremental LDR is ~80-82 per cent and sustained growth will improve valuations from current lows.
Healthcare: The brokerage remains overweight on healthcare by 240 bps as generic pharma players will benefit from benign API prices and stable US pricing while domestic growth is intact.
‘’We are shifting some weight from Cipla to Sun Pharmaceuticals given better growth prospects. We remain positive on hospitals led by Max healthcare with huge overweight given expected increase in bed capacity by acquisitions and brown field expansion at Mumbai and NCR even as it is maintaining above teens growth with little capacity addition as of now,” said Prabhudas Lilladher.
Consumer: The brokerage believes that overweight trade has played out amidst election volatility and expected pick up in both urban and rural demand. ‘’Given strong outlook in tourism, we increase weight on Interglobe Aviation by 20 bps,” said the brokerage.
Capital Goods: The brokerage raises overweight on capital goods to 560 bps given strong growth visibility over next 3-5 years. It increased weight behind L&T as a proxy play on infra development and government spending. ‘’We retain overweight on Siemens post de-merger announcement as the event will unlock value for shareholders,” said the brokerage.
Automobiles: The brokerage retains overweight stance. ‘’We believe normal monsoons will revive demand for entry-level bikes and benefit Hero MotoCorp. We believe sustained traction and margin improvement in auto business coupled with expected revival of growth in tractors augurs well for M&M in the medium term. Maruti is likely to be beneficiary of any reduction in duty on hybrid cars,” said Prabhudas.
Telecom: The brokerage raised overweight stance on Bharti Airtel as a structural play on rising data usage in ecom, infotainment etc. and expects the sustained growth in coming years. ‘’We expect improved pricing power in coming years, which will continue to improve financials and re-rate the stock,” said the brokerage.
High Conviction Stock Picks
Prabhudas Lilladher has removed Navneet Education (over patchy growth), Safari (due to slowdown in demand) and Grindwell (over sharp rally in stock price) from the high-conviction stock picks. Instead, it has added BEML (over strong play on defence and railways) and ITC (due to steady outlook, budget unlikely to be nasty) in the pack.
ITC: The brokerage expect little change in excise duty in FY25 budget, which will result in steady growth in cigarette business. FMCG remains on track with steady margin expansion and double-digit sales growth.
‘’We expect ITC to complete de-merger of hotels business in coming 6-8 months (SOTP value ₹25/share) which will unlock value. We believe that the stock can provide 10-15 per cent upside and time around budget jitteriness can be a good entry point in the stock,” said Prabhudas Lilladher.
BEML: Well-positioned for sustained long-term growth due to several key factors such as, significant capital expenditure in India’s railway and defense sectors, promising opportunities in the modernization of defense vehicles, a robust pipeline of tenders for metro and Vande Bharat rolling stock and anticipated margin improvements driven by enhanced execution capabilities.
Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.
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Published: 14 Jun 2024, 09:24 PM IST
