Indian benchmark indices have inched upwards so far this year, despite global and domestic headwinds. BSE Sensex and Bank Nifty have hit fresh highs while NSE Nifty 50 index has climbed over 4 per cent so far in 2022 and is just 100 odd points shy of hitting its all-time high. India is amongst the best-performing markets globally due to strong domestic demand, robust festival season, waned covid impact, and expectations of a prolonged capex cycle, according to analysts at Parbhudas Lilladher. They remain positive on the Indian share market and suggest accumulating fundamentally strong companies in uncertain times. According to the domestic brokerage firm, urban discretionary spends remain strong and indicate strong benefit due to economic revival and demographic dividend in the coming few years.
The positive outlook is backed by recovery in global markets as commodities cooled off on fears of tepid demand, rising interest rates, and recession, impacting demand in Europe and the USA. “However cost pressures are abating as most Agri commodities (led by Palm oil), crude, Metals etc. have seen meaningful correction from the peak. High-frequency indicators like GST collection, peak power demand, recovery in Air Travel, Sales of Apparel, QSR, PV, CV, Housing, Capital Goods and improving capacity utilisation are positive,” the brokerage said. While rural demand has failed to pick up due to high inflation, strong Rabi crop, declining inflation and likely increase in rural spending ahead of 2024 elections will revive rural demand from Q4FY23 to Q1FY24.
Nifty may rally up to 15%
NIFTY EPS has seen only minor tweaks in the current quarter with 12.4% EPS CAGR over FY22-25 with FY23, FY24 and FY25 EPS of Rs 845.7, Rs 957.8 and Rs 1084.4 respectively. Pabhudas Lilladher’s estimates are higher than consensus by 2.2% in FY23, while they are lower by 3.3% and 4.8% in FY24 and FY25. For the base case, the brokerage values Nifty at 10-year average PE (20.6x) with September 24 EPS of 1021 to arrive at the 12-month target of 21035, implying a 15.8% upside.
India amongst best placed globally, Will continue to provide positive returns
In the bull case scenario, analysts value Nifty at 10% premium to 10-year average (22.7x) and arrive at the bull case target of 23138. On the flip side, they see Nifty trading at 20% discount to LPA with a target of 16828 in a bear case like what happened in March 2020. “We remain structurally positive on India and expect markets to consolidate and watch for trends in global interest rates; domestic demand, more so in rural India; and geopolitical situation,” they said adding that India is amongst best placed globally and will continue to provide positive returns although near term volatility is expected to continue.
Prabhudas Lilladher High Conviction picks:
Largecaps: Reliance Industries, Bharti Airtel, Axis Bank, Avenue Supermarts, Mahindra and Mahindra (M&M), Cipla, Bank of Baroda, Apollo Hospitals Enterprise and PI Industries
Midcaps: Ashok Leyland, Max Healthcare Institute and Sumimoto Chemical India
Smallcaps: PVR, VIP Industries, Jubilant Pharmova, Nazara Technologies and Navneet Education.
According to the brokerage report, markets have started factoring some softening of US Fed commentary with regards to quantum of interest rate hikes, which can give a negative surprise in the near term. “We believe Auto, Capital Goods, Defense, Real estate, Telecom, Hospitals, Travel, QSR, Agrochemicals and Retail remain a compelling theme,” it said.
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