“We forecast Nifty earnings in FY24/25/26 to grow at 19 per cent/18 per cent/13 per cent; attributing 18.5x-19x PE, our Nifty target is 24,000-25,000 by March-September 2025. As the BJP returns to power. is widely expected, the mandate (if 400+ seats) will add to the performance of the stock market in the medium term. Our sector preferences are automobiles, cement, metals, capital goods, and financials. For others, we will adopt a bottom-up approach in stock pick. We believe incremental equity returns can be made on buy-on-fails and sector rotation,” the brokerage said in a recent note.
In its base case scenario for FY25-26 (India/global), it assumes that commodity prices will remain stable/lower, inflation and interest rates will remain low, economic growth will be decent (no steep recession), geopolitical. conditions will be stable, and that the Indian government will carry out its policies and fulfill its promises.
With the Modi government most likely to retain power in the upcoming elections, the brokerage expects economic buoyancy to continue; it maintained FY25 GDP growth at 7 percent, estimated FY26 at 7.3 percent.
Inflation should remain in a comfort zone, resulting in a rate cut in FY25-26, it predicted. A fiscal deficit of 4.5 percent by FY26 will constrain government spending, against the pace seen in recent years, while the BoP surplus is expected to widen sharply due to strong capital inflows. The brokerage continues to expect USD-INR to appreciate gradually in FY25-26.
“We will be keeping an eye on the amount of interest rate cuts globally; resilient economic data may lead to a lower rate cut than widely anticipated,” it said.
Equities rise to last, boosted by earnings and liquidity
The brokerage remains positive on Indian equities due to strong corporate earnings, rising demand, sustainable margins (off inflation), and strong equity flows from FIIs and DIIs. While the Nifty is richly valued, it is expected that higher valuations will be supported based on strong liquidity. Both domestic flows and FII flows were robust in FY24; FII inflows should pick up, it added.
“Equities have been the most prominent asset class in 2022-24 due to strong economic and corporate performance attracting domestic and global savings. We have been extremely bullish on India over the last two years. Currently, Nifty is trading at a one-year forward PE of 20.7x, which is on the higher side. While we continue to remain positive on Indian equities due to strong corporate earnings, increasing demand, sustainable margins (off inflation), and equity flows from FIIs and DIIs, we believe incremental returns. can be done on a buy-on -less and sector rotation. If the Fed and RBI cut rates sharply, equities will respond quite positively. The return of the BJP as an election result is largely factored into equities,” said Phillip Capital.
Pleasant forecast: Over the next 12 months (March 2025)
Bear case: 21,960-22,320 (FY26 EPS: 1220-1240, valuing 18x)
Base Case: 23,560-23,940 (FY26 EPS: 1240-1260, valuing 19x)
Bull Case: 25,200-25,600 (FY26 EPS: 1260-1280, valuing 20x)
Nifty at 24,00-25,000 by March-September 2025, so an increase of 8-14 percent. Earnings could be revised upwards for FY26, so the chances of a bull case scenario emerging are higher, assuming a strong policy outcome, stable/positive policies and a marginal rate cut. However, economic softness and weak capital flows will result in the bear case scenario, the brokerage noted.
Earnings momentum robust in FY25, further risk likely in FY26
The brokerage estimates PC Universe revenue growth in FY24/25/26 at 20 percent / 21 percent / 14 percent with margins continuing their expansion in FY25/26 to 15 percent / 15.3 percent from 13.6 percent in FY24. It sees tremendous growth in cars, finance, metals and cement; and decent growth trends in IT, pharma and FMCG. Currently, the brokerage’s FY26 earnings estimates are softer than FY24-25, but assuming the sustainability of strong growth trends and favorable government policies, there is a possibility of an upgrade in FY26.
“According to current projections, capex for PC covering companies is expected to grow by 1 percent in FY25 and decline by -5 percent in FY26. The consensus estimates of NIFTY500 indicate a similar pattern, with stable capex in FY25 and a -3 percent decline in FY26 . . However, we cross-checked these estimates with the data collected in the previous year. Significant upward revisions were seen in both PC coverage and NIFTY 500 capex for FY24/25. Estimates for PC coverage capex increased by 16 percent/21 -percent for FY24/25. , while NIFTY 500 capex increased by 18 percent / 21 percent during the same period. We believe this trend will continue and that the Indian corporate sector will invest significantly more, especially after the elections,” explained PC .
The brokerage expects the highest incremental EPS contribution to be from financials / oil & gas / IT in FY25.
“FY25 EPS YoY growth will be higher for telecom (at 70 percent, Bharti), metals (at 57 percent, led by Tata Steel and JSW Steel), pharma (at 34 percent, Apollo Hospitals and Divi’s Labs), automobiles (at 32 percent).percent, led by Tata Motors and Bajaj Auto), cement (at 26 percent, UltraTech Cement), industrials (at 25 percent, Adani Ports and L&T), finance (at 16 percent, Bajaj Finance, Bajaj Finserv, HDFC Life, and SBI). Life), and IT (at 15 per cent, Tech Mahindra and LTI Mindtree),” it predicted.
Best Choices: ICICI Bank, HDFC Bank, Maruti Suzuki, Tata Motors, Hero MotoCorp, L&T, ABB, BEL, UltraTech, Ambuja, JK Cement, Tata Steel, Hindalco, LTIMindtree, HCL Tech, Persistent, Ratnamani Metals, APL Apollo, Dr Reddy’s, Syngene, Finolex Cables, PG Electroplast, Kaynes Technology, Concor, Mahindra Logistics, GAIL, IGL, Shriram Finance, SBI Life, Aarti industries, SRF, GCPL, Nestle, Trent, Coromandel.
Disclaimer: The opinions and recommendations made above are those of individual analysts or trading companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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Published: 04 Mar 2024, 12:32 IST