The recent correction in Sensex and Nifty is only improving the expected returns from Dalal Street to double digits, said domestic brokerage firm ICICI Securities. Analysts at the brokerage believe the fall recorded by headline indices is akin to the ones seen in April, August, and October of 2020 and the one seen in February earlier this year. “We believe the current phase of correction is another such pause or consolidation before the next surge begins,” they added. ICICI Securities has a one-year forward target price on Nifty set at 19,300, implying a 12.9% upside from today’s low.
What makes analysts confident?
Among the reasons augmenting analysts’ belief in Nifty is the strong earnings cycle. ICICI Securities said that the strongest corporate earnings upgrade cycle since GFC is underway. They highlighted that one-year rolled forward EPS for the Nifty 50 index is up 32% so far this year. Further, the economic recovery driven by core activities related to GFCF and exports is seen as positive. Exports in the quarter ending September India’s exports stood at $102.15 billion, contributing 21.6% to the GDP.
Other reasons re-enforcing the positive outlook include the comfortable global liquidity outlook. “…the US Fed has only reduced the pace of liquidity infusion by announcing tapering while governments and central banks continue to spend or infuse liquidity,” ICICI Securities said. India’s structural upcycle, supporting digital and new-age economy along with robust macro fundamentals are other reasons strengthening the outlook.
Capital-intensive, cyclical and value stocks to outperform
Talking stock, ICICI Securities said that Capital-intensive stocks along with cyclical and value bets are likely to outperform after decadal underperformance. They added that new-age high-growth space could produce spectacular binary results. Since March 2020 fall, sectors such as metals, real estate, power, auto and consumer durables have been outperforming. Meanwhile, the information technology sector has outperformed on the expectations of cyclical growth emerging from digitalisation.
State Bank of India, HDFC Bank, HDFC, SBI Life Insurance, L&T, NHPC, NTPC, ONGC, Hindalco, UltraTech, Phoenix Mills, Tata Motors, TVS Motors, Tata Communications, Dr Reddy’s Laboratories, Infosys, and Info Edge are ICICI Securities’ top picks.
Watch out for these risks
“A change in the key assumption that ‘inflation spike is transient’ to ‘inflation being structurally high and sticky’ could move longer-term yields higher, thereby impacting the discount rate for all assets including equities,” they said. Along with this, a spike in crude oil beyond $80/bbl is seen as a negative by analysts given India’ reliance on imports. Health impact from Omicron variant has been termed as difficult to assess by the brokerage firm.